Should I Buy Advanced Auto Parts (AAP)? Finance YouTuber Analysis

The analyst is taking profits on Advanced Auto Parts, despite being up 41% and believing a rebound to $60 is possible. He notes the stock has flatlined around $50 and a significant move higher would require a major news event like a full buyout, which he no longer sees as likely enough to justify holding. He prefers to reallocate capital to opportunities with faster growth.

“While it is still possible the company gets that takeover offer on its very cheap valuation here at just.37 times price to sales and send this stock higher, the shares have pretty much flatlined around $50 each right now.”

The YouTuber views Advanced Auto Parts as a deep value play, anticipating a potential private equity buyout. Activist investors are pushing for changes, and the company is selling non-core assets to reduce debt. Despite an expected revenue decline, it remains strongly cash flow positive, making it an attractive target for an acquisition at a significant premium.

“At an Enterprise to revenue valuation of just 0.54 times the company is ripe for an offer from private Equity that could be as much as 20 or 30% higher than the current price.”

The YouTuber is holding Advance Auto Parts, a deep discount stock they've been buying around $50. Despite the turnaround not materializing yet, the investment thesis remains strong due to positive operational and free cash flow, recent asset sales to reduce debt, and potential activist investor pressure for further sales or a take-private.

“Still that bi thesis that I've talked about is still strong with this one and different from what we've seen in a lot of those falling stocks AAP is still a positive operational and free cash flow so there aren't those ex existential risks here.”

The analyst is accumulating shares of Advanced Auto Parts, which has plunged post-earnings. The company has attracted activist investors and is selling a segment to pay down debt, lowering its price-to-revenue to 0.4x. The stock is at a 14-year low, making it an attractive target for private equity.

“I'm picking up more shares of this incredibly cheap stock I originally started buying last November at around $50 a share on the idea that it's going to attract that activist investor or even private Equity buyers”

The company reported disappointing earnings but has significant cash reserves and is exploring the sale of its Worldpack and Carquest stores, which could generate billions to pay down debt and fund share buybacks. The analyst believes a share buyback program is coming, which could boost the stock.

“I believe a share buyback program is coming over the next year here could really boost these shares”

The YouTuber is holding Advanced Auto Parts ahead of its earnings report, expecting an upside surprise. He notes the stock is significantly undervalued, has new management, and competitor O'Reilly Auto's positive earnings, along with good retail sales data for auto parts, suggest a strong rebound for AAP.

“I continue to hold shares on the rebound here shares of competitor O'Reilly Auto tier o jumped 6% on its positive earning surprise and and retail sales reports or retail sales data for Auto Parts was generally good during the quarter so I'm expecting a surprise upside to Advanced Auto Parts here in the earnings call when it reports this week on Wednesday I believe shares of AAP are significantly underpriced too as that new management comes in and stages a turnaround.”

The stock is significantly undervalued compared to competitors and its historical valuation, trading at 8.9x P/E and 0.27x P/S. A new CEO and management team, coupled with favorable industry tailwinds like increased car ages and strong auto part spending, are expected to drive a turnaround. If management fails, the company is an attractive private equity target.

“I still like this idea I think if the company can't turn itself around if management can't reboost uh boost growth and and take some of that market share back from its competitors that it's lost I think private Equity or some kind of a you know activist investor jumps in here this is exactly the kind of company that private equity and activist investors like to deal in because they've got a great brand name they've got good market share within an industry they've got favorable industry Tailwinds”

The YouTuber is buying Advanced Auto Parts, noting its significant underperformance compared to competitors but highlighting new management as a potential catalyst for strong returns. Recent retail sales data showing an uptick in auto parts sales further supports his positive outlook.

“AAP has significantly underperformed its competitors over the last several years but now has new management and what could be a second chance and what could be very strong returns for investors”

The YouTuber recommends buying Advanced Auto Parts, either shares directly or via a call spread option strategy, as a turnaround play. He highlights the new CEO's logistics experience, the aging US vehicle fleet creating industry tailwinds, and the stock's cheap valuation (9-11x earnings) as catalysts for a potential rally, especially around the mid-November earnings report.

“Overall this stock is just too cheap to pass up and investors aren't expecting anything Wall Street expects sales growth of just 1 or 2% this year and next against high single-digit growth for its competitors the shares are now trading for about 11 times earnings right here nine times earnings and any good news whether a beat on earnings or just a turnaround plan could spark a run in this stock.”

The YouTuber is buying Advanced Auto Parts (AAP) due to its current undervaluation, trading at significantly lower price-to-sales and price-to-earnings multiples compared to its historical averages and competitors. He believes the new CEO, Shane O'Kelly, brings necessary logistics and retail experience to turn the company around, supported by an industry tailwind of increasing average car age. The recent dividend cut also frees up substantial cash for the company.

“I'm watching the stock could be too cheap to ignore and I'm buying the shares.”

The analyst sees a buying opportunity in AAP after its significant stock plunge and dividend cut. He notes that new management is expected by year-end, and the increasing average age of cars on the road ensures healthy demand for aftermarket parts. He also highlights the company's strong brand, free cash flow, and low enterprise value to sales multiple, suggesting it could attract activist or private equity investment.

“Next Shares are now off their 2021 Peak by 70 but there is reason to believe that this could be a great buying opportunity.”

The YouTuber recommends Advanced Auto Parts due to its high dividend yield (4.9%) and anti-cyclical nature, performing well during recessions as people repair older cars. Shares trade at a 35% discount to their five-year average valuation, and analysts have a $150 price target. However, the growth of electric vehicles poses a long-term risk.

“not only do you get a dividend yield here well above the money market rates but also a stock with an anti-cyclical boost protecting your money from a market crash”

Advance Auto Parts is highlighted for its exceptional dividend growth (90% annually over five years) and resilience during recessions, as people fix old cars instead of buying new ones. Despite a recent 31% drop, shares trade at a 27% discount to their long-term average, with a secure 4.2% dividend and 49% payout ratio.

“when people start worrying about the economy and their jobs they fix up their old cars instead of buying new and that means stable cash flows for auto parts stores.”

Advance Auto Parts is recommended for its strong dividend growth and recession-resistant business model. The company has a history of performing well during economic downturns, as consumers tend to repair older cars rather than buy new ones, ensuring stable cash flows. With a wide network of stores, it offers both dividend growth and a degree of safety.

“That's because when people start worrying about the economy and their jobs they fix up their old cars instead of buying new ones and means stable cash flows for auto parts stores.”

The YouTuber includes Advanced Auto Parts as a protective stock, citing its role in the auto parts sector which tends to perform well when consumers repair cars instead of buying new ones during recessions. He notes its cheaper valuation compared to AutoZone, despite slightly underperforming its peers year-to-date.

“I think either of those three AutoZone, O'Reilly or Advanced Auto Parts will help protect your portfolio... Advanced Auto Parts ticker AAP is the cheaper valuation though.”

The analyst likes Advanced Auto Parts despite recent accounting and earnings problems that have crushed the stock price. He believes the used car market will remain strong, benefiting companies that supply parts for refurbishing cars, and notes the company had revenue growth last quarter despite internal issues. He also suggests that legislation capping new car speeds might make keeping older cars more useful, further supporting the sector.

“I actually like this company I owned it a period of time when it was running up and I thought it was overv and sold it but it has a global footprint a very sticky product”

The analyst points to Advanced Auto Parts' deteriorating business fundamentals, highlighted by a decline in comparable sales and a significant reduction in free cash flow guidance from $700 million to $300 million. This indicates the company is struggling, especially with a potential recession looming, making it an asset to avoid.

“the business is clearly deteriorating pretty quickly and that's why the stock was off so much in the month of November”