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I'm Staying Away From Advance Auto Parts For Now

William Bias profile picture
William Bias


  • Advance Auto Parts’ same store sales inched along over the past five years.
  • Capital expenditures related to serial acquisitions hindered Advance Auto Parts’ free cash flow growth during that time.
  • Advance Auto Parts harbors too much long-term debt.

It's important for long-term investors to develop a guide for doing their investment research. Over the years I have developed questions to guide me in my thinking when researching the publicly traded universe. Today let's talk about Advance Auto Parts (NYSE: NYSE:AAP).

1.) What does the company do?

When you buy shares in a company you effectively become part owner of that company. Therefore, it's important for an investor to understand what a company sells. Advance Auto Parts sells car parts and accessories. It also caters to the commercial customer under the Carquest, Worldpac, and Autopart International names.

2.) What do the fundamentals look like?

Investors should also look for companies that grow revenue and free cash flow over the long-term, retaining some of that cash for reinvestment back into the business and for economic hard times. Excellent revenue and free cash flow growth serve as catalysts for superior long-term gains. Advance Auto Parts saw decent expansion in revenue and net income, but not so much in free cash flow. Over the past five years its revenue, net income and free cash flow expanded 71%, 49% and 10%, respectively (see chart below).

Advance Auto Parts pulled multiple levers to grow its revenue over the past five years. It opened and acquired new stores and expanded sales at existing stores with the exception of 2012 and 2013. However, capital expenditures and inventory pertaining to some of those acquisitions hindered free cash flow during that time.

AAP Revenue (<a href=

AAP Revenue (NYSE:TTM) data by YCharts

Advance Auto Parts is doing ok so far in FY 2015. Its revenue, net income and free cash flow expanded 2%, 0.3% and 120%, respectively, year-over-year in the most recent quarter. The expansion in revenue came from existing stores. Advance Auto Parts kept its costs in check contributing to the slight increase in net income. Favorable accruals and lower

This article was written by

William Bias profile picture
I have been analyzing stocks since 1992 and a freelance writer since 2012.

Analyst’s Disclosure: I am/we are long GPC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (2)

The Benjamin Fund profile picture
On number 3, rather than looking at percentage of the company owned by insiders, it's probably more relevant (although tougher to research) what percentage of total wealth by insiders is derived by company stock. Even if it's under 1% of total stock, it may be 80%+ of the person's total wealth -- enough to provide the incentive you're looking for.
William Bias profile picture
Hi johnnyclueless,

You have a point and I can't look at their personal financial statements. But it's relatively safe to say that if they own more than 1%, that a (significant though not necessarily the majority of) of their wealth is in the company and the influence is definitely there.

Thanks for reading.

William Bias
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