3/28/2016 Current share price: $161.76
Advance Auto Parts is a supplier of automotive aftermarket parts. The company sells brand name and original equipment manufacturer equipment. The company serves both do-it-yourself-ers and commercial customers. The company operates 5,261 stores in the United States and Canada.
The simplest valuation is to compare Analyst target to the current price. The analyst target is 8% above the current price. Analyst targets can be inflated during bull runs in the market, and as such 8% upside to an analyst target during a bull surge is not a meaningful amount of upside.
The next simplest measures are Graham valuations. 4 variations are used using different time tables for calculating EPS and EPS growth. Three of the four variations value Advance Auto Parts Stock below the current share price. Leverage has nearly tripled in the last 5 years, which should be corrected for to form a more precise valuation.
Relative valuations are based upon historic ratio values that the stock has traded at. Buying at less than the historic values represent a good value. Based on historic multiples AAP is trading at a significant premium to what it has normally traded at. Price to earnings (P/E), price to free cash flow (P/FCF), and price to sales (p/s) ratio valuations all value AAP at at least 32% below its current share price of $161.76.
Intrinsic valuations include discounted cash flow (DCF), dividend discount model (DDM), and Earnings Power Value (EPV). The DCF model values the AAP at $107.73, suggesting considerable downside potential. EPV values Advance Auto Parts at $100.18 confirming that AAP is trading at a significant premium. The dividend growth model, DDM, values the AAP at $3.22 which says the the stock should not be bought for dividend growth investors.
Simple Moving Average
AAP's 13 day simple moving average is rising and it is currently trading above it. Both of these are signs of a bullish trend.
The MACD is above the signal line and the value is below 0, which are both bullish.
On Balance Volume
The OBV indicator shows that long term bearish trends have given away to bullish influence.
Advance Auto Parts is overvalued by ~30%. It currently does not represent a good value. This conclusion is unanimous with all valuation methods.
AAP does not represent a good stock to trade as a value investor. The large amount that it is overvalued skews the risk reward heavily toward unjustifiable risk. The positive technical indicators are largely mirrored by the entire stock market. Bets placed on the market surge continuing would be better placed on a stock with a valuation closer to the current share price, limiting the potential fall if the trade goes poorly.