Advance Auto Parts, Inc. (AAP), AutoZone, Inc. (AZO): These Stocks Might Continue to Defy Gravity This Year

Page 1 of 2

Confidence in the economy, tax refunds, and low-cost financing are some of the reasons that have driven car sales higher so far this year. According to USA Today, income tax refunds have helped consumers make the down payments for new cars and replace older vehicles that have been on the road for around 11 years.

Advance Auto Parts Inc (NYSE:AAP)However, stocks of companies that sell aftermarket auto parts have done well this year, despite the rise in the number of new vehicles. Advance Auto Parts, Inc. (NYSE:AAP), AutoZone, Inc. (NYSE:AZO), and O’Reilly Automotive Inc (NASDAQ:ORLY) have appreciated in the mid-teens, even though the first two reported negative same-store sale growth in their latest quarterly reports.

Let’s review how each of them did in the first three months of 2013 and what can be expected from them going forward.

Advance Auto Parts, Inc. (NYSE:AAP)

Advance Auto Parts, Inc. (NYSE:AAP) added just over 15% to investors’ wealth in the first quarter of the calendar year, which included a positive quarterly report. Even though the company failed to improve revenue, and witnessed a 1.9% decline in same-store sales in the previous quarter, efficient cost management helped it record a solid bottom line beat.

Going forward, Advance Auto Parts, Inc. (NYSE:AAP) is looking to step on the gas and catch up with its larger peers. The company is behind AutoZone and O’Reilly in terms of store count, but it is aggressively looking to grow its network. It opened a record 137 stores in the previous fiscal year, and acquired stores of the bankrupt Strauss Auto Parts to establish its presence in New York.

The company is also intent on growing its e-commerce business, and is counting upon the older population of vehicles to drive its business. It expects its new stores, a colder weather, declining gas prices, and a rise in the population of vehicles older than seven years to help its same-store sales back in the black.

The stock trades at a trailing P/E multiple of 15.6, which doesn’t seem too expensive considering the moves it is making. Investors should keep an eye on Advance Auto Parts, Inc. (NYSE:AAP) as it has the potential to advance higher as the year progresses.

AutoZone, Inc. (NYSE:AZO)

AutoZone, Inc. (NYSE:AZO) appreciated about 14% in the first three months of the calendar year, but reported mixed results for the second quarter. The company, like Advance Auto, witnessed a decline in same-store sales which fell 1.8%, as a delay in processing income tax returns held up tax refunds and hurt AutoZone, Inc. (NYSE:AZO). However, AutoZone, Inc. (NYSE:AZO) did manage to grow earnings 15% from the year-ago period on the back of lower cost of parts.

Being the largest auto-parts retailer in the U.S., AutoZone, Inc. (NYSE:AZO) enjoys the advantage of having the widest network of stores, which number just above 5,000. The company is facing weakness in the Northeast and the Midwest markets, while analysts expect that AutoZone, Inc. (NYSE:AZO)’s do-it-yourself business, which forms the majority of its revenue, is in for some tough times due to spending constraints of low income households.

However, management is optimistic about the company’s progress going forward. The high average age of vehicles, expectation of a colder winter later this year, and focus on e-commerce are expected to drive results. Investors seem to have confidence in AutoZone’s prospects as well, since the stock has continued its rally even after the mixed results it posted in late February.

AutoZone’s trailing P/E ratio of around 16 is almost at par with Advance Auto, but its PEG ratio of under unity is the lowest among the peer group, which signifies that it’s expected to grow the fastest. The company might be under pressure as of now, but the probability of an upswing in the business going forward might help the stock keep its momentum intact. However, with the stock trading near its 52-week high and no immediate bounce back in same-store sale growth in sight, investors should tread with caution while considering AutoZone for their portfolio.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!