Why Advance Auto Parts Lost 12{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} in February

What transpired

Shares of Advance Car Parts (NYSE:AAP) have been sliding in February after the auto pieces retailer reported fourth-quarter earnings and as the broader sell-off in the sector around considerations about rising fascination prices and the war in Ukraine seemed to weigh on it.

According to details from S&P Worldwide Market place Intelligence, the stock completed the month down 12{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157}. As you can see from the chart under, the inventory was primarily flat as a result of the first 50 {09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} of the month before sliding in the third week of February immediately after its earnings report came out.

AAP Chart

AAP info by YCharts

So what

After a peaceful to start with 50 {09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} of the thirty day period, Advance Car Parts noted reliable fourth-quarter outcomes. The firm concluded with 8.6{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} earnings advancement in the fourth quarter, modified for the extra 7 days in 2020, to $2.4 billion with equivalent revenue up 8.2{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157}. That edged out estimates at $2.37 billion.

A customer at an auto parts store holding a container of motor oil.

Graphic resource: Getty Pictures.

Profitability also improved as adjusted gross margin improved 145 basis points to 46.8{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157}, an spectacular feat in the course of a provide chain crunch. Meanwhile, adjusted operating revenue improved 25{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} to $176.8 million, and modified earnings for each share jumped 36{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} to $2.07, in advance of estimates at $1.96.

The business also claimed it would elevate its quarterly divided 50{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} to $1.50 for each share, equal to a 3{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} produce and a signal of self-confidence in its future. It also amplified its share repurchase authorization by $1 billion. 

Wanting in advance, the organization referred to as for extra modest development in 2022, forecasting 1{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} to 3{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} similar gross sales development and income of $11.2 billion to $11.5 billion, or a 2{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} to 5{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} boost, which was forward of the consensus at $11.17 billion. On the bottom line, it expects altered earnings for every share of $13.20 to $13.75, or a 10{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} to 15{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} improve from 2021. 

Buyers mainly shrugged off the report, and the inventory slipped together with the broader markets on fears of mounting desire prices, better gasoline prices, and Russia’s invasion of Ukraine in the 2nd fifty percent of the month.

Now what

For investors looking for a protected inventory to aid carry them by means of unsure occasions with higher inflation, a market pullback, and the war in Ukraine, Progress Car Pieces appears like a fantastic guess. Car areas companies have a tendency to do effectively in recessions as drivers choose to maintenance their latest cars relatively than buy new types, and the chip lack has now led to unusually superior costs for new and utilised autos, favoring businesses like Advance, particularly as the common age of a auto on the road in the U.S. is presently 12 several years.

Throw in an captivating valuation and a 3{09e594db938380acbda72fd0ffbcd1ef1c99380160786adb3aba3c50c4545157} dividend produce and you have a formula for a stock that looks most likely to defeat the sector this yr.

This short article signifies the view of the author, who may possibly disagree with the “official” recommendation situation of a Motley Fool premium advisory provider. We’re motley! Questioning an investing thesis — even one particular of our personal — aids us all imagine critically about investing and make conclusions that assistance us come to be smarter, happier, and richer.