Advance Auto Parts, Inc. (AAP): A Bull Case Theory

We came across a bullish thesis on Advance Auto Parts, Inc. (AAP) on Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on AAP. Advance Auto Parts, Inc. (AAP)’s share was trading at $35.37 as of March 7^th. AAP’s trailing and forward P/E were 174.78 and 23.58 respectively according to Yahoo Finance.

Advance Auto Parts (AAP) is undergoing a rapid transformation under new management, but the market reacted negatively to its latest earnings report, sending the stock from $46 to $37. The company executed a massive restructuring, closing over 500 stores in one quarter instead of gradually phasing them out over 2025. This move included lease buyouts and deep inventory markdowns, which severely impacted short-term financials but should significantly improve margins in the coming quarters. While such a drastic approach is uncommon, it suggests management is taking an aggressive stance to reposition the business for profitability.

The GAAP net loss of $820 million is concerning, but the bigger issue is the increased uncertainty in forecasting future performance. Originally, the turnaround was expected to be a measured process focused on logistics efficiency, leveraging the expertise of AAP’s CEO, formerly of Home Depot Logistics. However, the situation appears more dire than initially believed. The previous management team engaged in empire building, made poor acquisitions, and failed to modernize while competitors strengthened their operations. The extent of the damage has only now become clear, making it difficult to predict AAP’s future state.

Despite the uncertainty, the core investment thesis remains intact. Auto parts retailing lacks a strong moat, but the business model is resilient due to the immediate need for replacement parts, limiting online disruption. AAP has the potential to become a much leaner, more competitive player in the space. The company is now on an accelerated path to efficiency, and while the near-term outlook is volatile, the long-term opportunity remains attractive if management successfully executes the turnaround.

Advance Auto Parts, Inc. (AAP) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 43 hedge fund portfolios held AAP at the end of the fourth quarter which was 37 in the previous quarter. While we acknowledge the risk and potential of AAP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AAP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.