Advance Auto Parts (AAP) Showing Signs Of Being Water-Logged And Getting Wetter

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Advance Auto Parts ( AAP) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Advance Auto Parts as such a stock due to the following factors:

  • AAP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $86.5 million.
  • AAP has traded 403,743 shares today.
  • AAP traded in a range 203.8% of the normal price range with a price range of $5.28.
  • AAP traded below its daily resistance level (quality: 1 day, meaning that the stock is crossing a resistance level set by the last 1 calendar day. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on AAP:

Advance Auto Parts, Inc., through its subsidiaries, operates as a specialty retailer of automotive aftermarket parts, accessories, batteries, and maintenance items. It operates in two segments, Advance Auto Parts (AAP) and Autopart International (AI). The stock currently has a dividend yield of 0.2%. AAP has a PE ratio of 23.7. Currently there are 7 analysts that rate Advance Auto Parts a buy, no analysts rate it a sell, and 9 rate it a hold.

The average volume for Advance Auto Parts has been 899,400 shares per day over the past 30 days. Advance Auto Parts has a market cap of $8.7 billion and is part of the services sector and retail industry. The stock has a beta of 1.01 and a short float of 2.2% with 2.18 days to cover. Shares are up 9.8% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Advance Auto Parts as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, expanding profit margins, reasonable valuation levels and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 6.6%. Since the same quarter one year prior, revenues slightly increased by 6.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, AAP's share price has jumped by 53.92%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, AAP should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • ADVANCE AUTO PARTS INC's earnings per share declined by 23.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ADVANCE AUTO PARTS INC increased its bottom line by earning $5.33 versus $5.22 in the prior year. This year, the market expects an improvement in earnings ($7.50 versus $5.33).
  • The gross profit margin for ADVANCE AUTO PARTS INC is rather high; currently it is at 53.20%. Regardless of AAP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 3.49% trails the industry average.

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