Genuine Parts Company (GPC), AutoZone, Inc. (AZO): A Long Ride For Aftermarket Auto Parts?

Improving Performance

Advance Auto Parts, Inc. (NYSE:AAP), another retail-focused company, also grew its top and bottom lines right through the recession. However, its profit margins are around eight percentage points lower than that of AutoZone, Inc. (NYSE:AZO).

The company has been working to fix this. Over the last few years its profit margin has improved from around 8% or so to about 10%. That’s a big improvement, but based on AutoZone, Inc. (NYSE:AZO)’s high teens profit margins, there could be more room to go.

Advance Auto Parts, Inc. (NYSE:AAP) has around 3,700 stores mostly located in the eastern half of the country. So it has plenty of expansion potential. Moreover, it has been moving into the professional side of the business using its existing store base. So top line growth shouldn’t be an issue. The aged auto fleet is just icing on the cake. The shares are still recovering from a swift drop in the middle of 2012, so it may still be a good investment option.

Tailwinds

The replacement auto parts business has a clear tailwind. That hasn’t gone unnoticed by the market, but that doesn’t mean the opportunity is gone. In fact, this is likely to be a trend that lasts for several years, since cars are relatively infrequently purchased items. Genuine Parts Company (NYSE:GPC) is the most diversified and conservative company here, while Advanced has something of a turnaround feel to it, as management works to increase profitability.

The article A Long Ride For Aftermarket Auto Parts? originally appeared on Fool.com and is written by Reuben Brewer.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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