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Advance Auto Parts Should Make Your Portfolio Healthier
Posted by: Suravi Thacker (IP Logged)
Date: June 18, 2014 02:11PM
According to the Federal data, buying a new automobile in 2012 led to an expense of 16% of the household income, whereas the cost of getting the old one repaired makes only 1.6% of the income of that year. Therefore, it would seem that most of the people try to keep their vehicles for a longer time period in order to save on their expense. As a result, the average age of household vehicles increased to 11.3 years in 2012 from 10.1 years in 2007.
Clearly, the auto parts retailers should benefit from this emerging trend since this has led to higher demand for auto parts and their repairs. There are a number of prominent auto parts retailers who are witnessing gains of this emerging trend and are therefore performing extremely well. Some of them are Advance Auto Parts (AAP), AutoZone (AZO) and O’Reilly Automotive (ORLY).
When compared on a five year stock performance basis, Advance Auto provided the least return to its investors as against its peers. Advance Auto’s stock price appreciated by 200.8%, whereas AutoZone and O’Reilly stood at 237.7% and 319.2%, respectively.
However, with the acquisition of General Parts International changed the situation completely for Advance Auto. In the last one year, Advance Auto has performed much better than the others. It leads the pack with a total return of 51.3%, whereas AutoZone and O’Reilly stood at 23.6% and 34%, respectively. This is mainly because of the retailer’s efforts to grow, including the recent acquisition. In fact, addition of General Parts has made the company the biggest auto parts retailer in North America.
Moreover, the retailers’ stock prices move along with the growth in revenue. Therefore, growing top line has helped Advance Auto in outpacing its peers. Quarterly revenue grew the most for Advance Auto (91.6%) as compared to that of AutoZone (-35.7%) and O’Reilly (0.76%).
A sneak peek into each
O’Reilly posted its first quarter results a few weeks ago, wherein its top line surged 9% over the prior year, clocking in at $1.7 billion. Revenue increase was largely driven by the addition of 50 new stores during the quarter and same store sales growth of 6.3%. Also, the bottom line climbed 18.4% to $1.61 per share, over last year’s quarter. Although the company’s results were good, it was unable to outperform Advance Auto Parts.
AutoZone, on the other hand, has adopted a strategy similar to that of Advance Auto Parts. It has been acquiring other businesses to grow. For instance, it acquired AutoAnything, an online auto parts retailer, in order to expand its online presence. Still, it is unable to grow as much as its peer Advance Auto, as evident from its performance in the charts above.
Further, Advance Auto’s recent quarter was a blockbuster one with a 47 % increase in top line and 35.5% surge in the bottom line. This was due to the new buyout as well as higher demand because of chilled winters which led to higher wear and tear of auto parts.
Summing it up
The best performer among the mentioned players is Advance Auto Parts. It has outperformed its peers, both in terms of stock price increase and revenue growth. It posted great quarterly numbers which were remarkable. Also, the company provided a bright outlook for the year, which thrilled the investors. These factors together make Advance Auto a great buying opportunity.
Stocks Discussed: AAP, AZO, ORLY,