Value-focused investors are constantly on the lookout for stocks trading below their intrinsic value. Advance Auto Parts Inc (AAP, Financial) seems to fit this description. With its stock currently priced at $68.21, recording a day's loss of 2.31% and a 3-month decrease of 41.58%, it may seem like an attractive option. However, the GF Value of the stock, estimated at $210.3, suggests otherwise.
Understanding the GF Value
The GF Value is a unique method of determining a stock's intrinsic value. It is based on historical multiples, GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above or below the GF Value Line, it can indicate potential overvaluation or undervaluation, respectively.
Deeper Analysis Required
Despite the apparent undervaluation, investors should consider other risk factors associated with Advance Auto Parts (AAP, Financial). The company's low Altman Z-score of 1.46 suggests potential financial distress, indicating that AAP might be a value trap. Therefore, thorough due diligence is essential before making an investment decision.
Understanding the Altman Z-Score
The Altman Z-score is a financial model that predicts the probability of a company entering bankruptcy within two years. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
Company Overview
Advance Auto Parts is a leading retailer of aftermarket automotive parts, tools, and accessories in North America. As of the end of 2022, the company operated 5,086 stores and serviced 1,311 independently owned Carquest stores. Its Worldpac chain is a premier distributor of imported original-equipment parts. Here is the income breakdown of Advance Auto Parts:
Assessing the Altman Z-Score
A closer look at Advance Auto Parts's Altman Z-score reveals potential financial weaknesses. This low score indicates a high likelihood of financial distress, reinforcing the idea that Advance Auto Parts could be a potential value trap.
Conclusion
While Advance Auto Parts may initially seem undervalued, the company's low Altman Z-Score and potential financial distress indicate that it could be a value trap. Therefore, investors should exercise caution and conduct thorough due diligence before investing. GuruFocus Premium members can use the Walter Schloss Screen to find stocks with high Altman Z-Scores.
