ADVANCE AUTO PARTS, INC. (AAP): what the price requires
The current priced-in claim for ADVANCE AUTO PARTS, INC. (AAP) is temporarily suppressed because the live engine record is unavailable. The dated report remains a snapshot, not a current market read.
Generated: 2026-07-13 · Source: https://boothcheck.com/report/AAP
Headline
| Field | Value |
|---|---|
| Ticker | AAP |
| Company | ADVANCE AUTO PARTS, INC. |
| Current price | $55.08/sh |
| Composition | United States 97% / Canada 3% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 2.4% |
| Operating margin (mid-cycle) | 6.2% |
| Margin compression implied | -3.8pp |
| Trailing margin (depressed year) | -0.2% |
| Multiple paid | 11x mid-cycle operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
The price sits below what even a 5%/yr operating-profit decline would warrant; the inversion reports a bound, not a solved growth path.
Solve inputs: computed at a 7% cost of capital with 4% terminal growth over a 5-year stage (computed at the 7% minimum rate; the CAPM rate 4.4% sits below it).
Reconcile: at the x-ray's 9.3% required return this reads ~-3.2%/yr; the models below use their own rates.
How unusual the bet is: within-range (limited comparison data)
| Reference | Value |
|---|---|
| vs own history | +0.04σ |
| implied end-window share | 0% |
Valuation X-Ray
Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 8.20x | 5 | expensive |
| Earnings | 4.25x | 3 | expensive |
| Relative | 2.04x | 5 | expensive |
| Growth | 0.78x | 4 | justifies |
Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 5.7%); the inversion above states its own rate.
Per-Model Detail (n=17)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | — | — | no | — |
| DCF Exit Multiple | Growth | $79.37 | 0.69x | yes | Exit EV/EBITDA: 22.4x / 24.4x / 26.4x (bear / base = today's held flat / bull), 7yr |
| Relative Valuation | Relative | $29.85 | 1.85x | yes | P/E 36.87x (blended: sector 20x + trailing (TTM) 76x), scenarios: 29.8x / 36.9x / 44.0x (bear / base = sector held flat / bull), EV/EBITDA 17.11x |
| Simple DDM | Growth | $27.67 | 1.99x | yes | DPS $1.97, g=2.0% (sustainable: ROE (TTM) × retention; not the terminal-growth assumption), ke=9.3% |
| Two-Stage DDM | Growth | $69.88 | 0.79x | yes | Stage 1: 20% for 5yr, Stage 2: 3.5% perpetual |
| Simple Excess Return | Asset | $7.81 | 7.05x | yes | BV/sh $36.34, ROE (TTM) 2.0%, ke 9.3% |
| Two-Stage Excess Return | Asset | $4.38 | 12.58x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $70.96 | 0.78x | yes | Rev $8.6B, growth 25% (input: historical growth; tapered), Terminal P/S: 0.3x / 0.4x / 0.5x (bear / base = today's held flat / bull, cap 12x) |
| Peter Lynch Fair Value | Relative | $20.21 | 2.73x | yes | EPS $0.72, growth 28% (input: historical EPS growth), PEG=2.72 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $12.95 | 4.25x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.25B × (1−31%) / WACC 5.7% → EPV (no growth) |
| Residual Income | Asset | $3.18 | 17.32x | yes | BV $36.34 + 5yr PV of (ROE (TTM) 2.0% − Kₑ 9.3%) × BV; BV grows 1.3%/yr |
| Graham Number | Asset | $24.26 | 2.27x | yes | √(22.5 × EPS $0.72 × BVPS $36.34) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $15.81 | 3.48x | yes | EBITDA $0.23B × sector EV/EBITDA 14.0x |
| FCF Yield | Earnings | — | — | no | — |
| SBC-Adj FCF Yield | Earnings | — | — | no | — |
| Ben Graham Formula | Earnings | $23.23 | 2.37x | yes | EPS $0.72 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $6.72 | 8.20x | yes | BV $36.34 × (ROIC 1.1% / WACC 5.7%) |
| P/Sales Sector | Relative | $212.61 | 0.26x | yes | Revenue $8.63B × sector P/S 1.5x |
| PEG Fair Value | Relative | $27.00 | 2.04x | yes | EPS $0.72 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $7.78 | 7.08x | yes | EPS $0.72 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $458.0m |
| Net debt / NOPAT (after-tax) | 1.17x |
| Net debt / operating income (pre-tax) | 0.80x |
| Share count CAGR (buyback) | -0.3% |
| Burning cash | no |
Leverage and coverage are computed on normalized mid-cycle operating income (mid-cycle margin 6.2%); the trailing year was depressed.
Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.
Bullet Takeaways
- On its through-the-cycle earnings, Advance Auto Parts looks cheap, not expensive. At about 11 times normalized operating income, the price sits below what even a 5% annual decline in operating profit would warrant. The catch is that current earnings are depressed, so the methods that run on trailing numbers paint a very different, much more expensive picture.
- The whole thesis is whether the turnaround is real. Q1 2026 delivered the strongest comparable sales growth in five years at 3.5%, gross margin rose to 45.1% from 42.9%, and the company swung from a $131 million operating loss to $69 million of operating income. Management reaffirmed full-year guidance with adjusted operating margin expanding toward 3.8% to 4.5%.
- Leverage is moderate, with net debt under one turn of operating income, but the underlying returns are still weak: return on invested capital near 1% against a cost of capital far higher. The recovery has to keep building before the asset and earnings-power methods stop flagging the stock as overvalued on current results.
Bull Case
Auto-parts retail is a sector with an unusual valuation property: the industry has historically supported very high returns on capital and durable multiples, which is why a depressed member of it can look mispriced when judged on normalized rather than trough earnings. Advance Auto Parts has spent recent years as the laggard of a strong sector, behind AutoZone and O'Reilly on margin and execution, but the business it operates in is structurally resilient. People repair the cars they already own when budgets tighten, the parts are non-discretionary, and the professional installer channel buys on availability and relationship rather than price alone. The relevant question is not whether the sector is good. It is whether Advance can close the gap to peers, and on through-the-cycle margins the price is paying as if it never will.
The first-quarter 2026 result is the strongest evidence yet that the turnaround is taking hold. Comparable sales grew 3.5%, the best in five years, with mid-single-digit growth in the higher-value Pro channel. Gross margin expanded to 45.1% from 42.9%, and the operating line swung from a $131 million loss a year earlier to $69 million of operating income, a 410-basis-point improvement in adjusted operating margin. That is not a cost-cut mirage. Margin expansion alongside positive comparable sales is the signature of a retailer regaining pricing discipline and supply-chain efficiency at the same time, which is exactly what a turnaround needs to show.
The valuation math is what makes the recovery interesting. On its own through-the-cycle margins applied to current revenue, the price sits below what even a modest annual decline in operating profit would justify. In other words, the market is pricing continued deterioration into a business that just posted its best sales quarter in five years and reaffirmed a full-year guide calling for adjusted operating margin to expand to 3.8% to 4.5% and adjusted EPS of $2.40 to $3.10. Net debt is under one turn of operating income, so the balance sheet gives the turnaround room to run. If management simply executes the reaffirmed plan, the earnings base the cheap methods are starved of starts to fill in, and the gap between the depressed-trailing view and the normalized view closes in the holder's favor.
Bear Case
The bear case is that Advance Auto Parts has spent a decade losing ground to better operators, and one good quarter does not prove the erosion has stopped. AutoZone and O'Reilly have steadily out-executed Advance on the professional installer channel, on distribution density, and on inventory availability, the three things that actually determine which store a mechanic calls first. The FY2025 10-K states the risk plainly: if the company is unable to compete successfully against other companies in the automotive aftermarket industry, its business, financial condition, and results could be adversely affected (FY2025 10-K, accession 0001193125-26-051305). When the gap to peers is structural, built on supply-chain scale and store networks that took rivals years to assemble, a few quarters of margin recovery can be cyclical relief rather than durable share gain.
The returns underscore how far there is to go. Return on invested capital sits near 1% against a cost of capital several times higher, which means the business is currently destroying economic value even as it recovers. The asset and earnings-power methods reflect this brutally: the Earnings Power Value method, run on normalized earnings, lands near $1, the excess-return methods in the single digits, and the residual-income method near $3. Those are not typos, they are what the static frames produce when a retailer earns almost nothing on a large book-value base. The recovery has to be substantial and sustained, not just a quarter or two, before those methods produce a number anywhere near the $60 price (June 27, 2026).
The execution risk is the quiet killer. Turnarounds in retail are notoriously fragile because they depend on simultaneously fixing pricing, inventory, store labor, and supply chain without breaking the customer relationship in the process. Advance closed a net store during the quarter and plans only modest new openings, so the growth has to come from same-store productivity, the hardest kind to sustain. The reaffirmed guidance still implies full-year comparable growth of just 1% to 2%, well below the 3.5% the first quarter posted, which is management itself signaling the quarter may not repeat. The bear case is straightforward: the price already embeds a successful turnaround on the cheap-looking normalized math, the company has a long history of failing to close the gap to peers, and the returns remain too low to call the recovery proven.
Valuation
The right starting point is the normalized read, because trailing earnings are depressed by the turnaround and would distort the picture. On the company's own through-the-cycle margins applied to current revenue, the market is paying about 11 times normalized operating income, a multiple so low that the price sits below what even a 5% annual decline in operating profit would warrant. That is a bound, not a solved point: the price embeds continued deterioration, and the question is simply how much. Measured against the company's own recent history, the implied pace is within what it has delivered, so on normalized economics the stock screens as undemanding rather than stretched.
The complication is that the valuation X-ray, run on current depressed earnings, says the opposite, and the contradiction is the whole story. On trailing numbers no family reaches the price. The Earnings Power Value method lands near $1, the asset methods in the single digits, the blended peer multiple near $29, and only the two-stage dividend model, which assumes a sharp growth recovery, approaches the price near $70. The reason every static method is so low is that return on invested capital is near 1% and trailing operating margin is 1.8%, so the methods are dividing a tiny current profit by a large capital base. This is the textbook signature of a depressed cyclical or a turnaround: cheap on normalized earnings, expensive on trough earnings, and the gap between the two is exactly the recovery the buyer is betting on.
The reconciliation is execution. If Advance hits the reaffirmed guidance, adjusted operating margin expanding to 3.8% to 4.5% and adjusted EPS of $2.40 to $3.10, the trailing earnings rise toward the normalized level, and the static methods that look horrified today produce far higher numbers. If the recovery stalls, the trailing view is the true view and the price is many times the static-method fair value. Net debt under one turn of operating income means the balance sheet is not forcing the issue, so this is a turnaround bet priced on normalized economics, where the entire valuation hinges on whether the first-quarter momentum continues.
Catalysts
The first-quarter 2026 report, released in late May, was the clearest turnaround signal yet. Comparable sales grew 3.5%, the strongest in five years, with mid-single-digit Pro growth and low-single-digit DIY growth. Net sales were $2.61 billion, gross margin expanded to 45.1% from 42.9%, and the operating result swung from a $131 million loss to $69 million of operating income, with adjusted operating margin up 410 basis points to 3.8%. The company ended the period with 4,308 stores after opening four and closing one. Management reaffirmed full-year 2026 guidance for net sales of $8.49 to $8.58 billion, comparable sales growth of 1% to 2%, adjusted operating margin of 3.8% to 4.5%, and adjusted diluted EPS of $2.40 to $3.10, with plans to open 40 to 45 stores and 10 to 15 market hubs.
The forward catalysts are all about whether the recovery sustains. The items to watch are the comparable-sales trend in coming quarters (the reaffirmed full-year guide of 1% to 2% is well below the first-quarter 3.5%, so the question is how much of the quarter repeats), the trajectory of gross and operating margin as the supply-chain and pricing work continues, the ramp of the new market hubs that are central to the Pro-channel strategy, and progress closing the execution gap to AutoZone and O'Reilly. The next quarterly print, due in the late-August window, is the key test of durability. A second strong comparable-sales quarter with continued margin expansion would validate the turnaround and let the normalized valuation assert itself; a reversion toward the cautious full-year guide would keep the trailing-earnings skepticism alive.
Sources: Advance Auto Parts Q1 2026 results (ir.advanceautoparts.com, nasdaq.com); MarketChameleon five-year comparable-sales coverage (marketchameleon.com); AAP Q1 2026 earnings transcript (fool.com, 2026-05-21).
Peer Cohorts (Per Segment, With Filing Citations)
Advance Auto Parts/Carquest (consolidated) (reported)
- AZO (AUTOZONE INC)
- (no filing in the citation store)
- ORLY (O Reilly Automotive Inc)
- (no filing in the citation store)
- BLDR (Builders FirstSource, Inc.)
- (no filing in the citation store)
- NSIT (INSIGHT ENTERPRISES, INC.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.