In this article, I will take a look at Advance Auto Parts, Inc.’s (NYSE:AAP) most recent earnings update (29 December 2018) and compare these latest figures against its performance over the past few years, along with how the rest of AAP’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time.
Was AAP weak performance lately part of a long-term decline?
AAP’s trailing twelve-month earnings (from 29 December 2018) of US$424m has declined by -11% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 1.2%, indicating the rate at which AAP is growing has slowed down. Why could this be happening? Well, let’s look at what’s transpiring with margins and if the entire industry is experiencing the hit as well.
In terms of returns from investment, Advance Auto Parts has fallen short of achieving a 20% return on equity (ROE), recording 12% instead. Furthermore, its return on assets (ROA) of 5.3% is below the US Specialty Retail industry of 6.9%, indicating Advance Auto Parts’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Advance Auto Parts’s debt level, has declined over the past 3 years from 19% to 14%.
What does this mean?
Advance Auto Parts’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Typically companies that endure a prolonged period of decline in earnings are undergoing some sort of reinvestment phase in order to keep up with the recent industry disruption and expansion. I suggest you continue to research Advance Auto Parts to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AAP’s future growth? Take a look at our free research report of analyst consensus for AAP’s outlook.
- Financial Health: Are AAP’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 29 December 2018. This may not be consistent with full year annual report figures.
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