Watch Out: Barbarians At The Gate For Advance Auto Parts (AAP)

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 "barbarian at the gate" (strong stocks crossing above resistance 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 $101.2 million.
  • AAP has traded 1.4 million shares today.
  • AAP traded in a range 212.7% of the normal price range with a price range of $5.14.
  • AAP traded above its daily resistance level (quality: 28 days, meaning that the stock is crossing a resistance level set by the last 28 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' 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 positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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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 22.0. 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 708,400 shares per day over the past 30 days. Advance Auto Parts has a market cap of $9.1 billion and is part of the services sector and retail industry. The stock has a beta of 1.00 and a short float of 2.8% with 2.25 days to cover. Shares are up 11.1% year-to-date as of the close of trading on Wednesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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 robust revenue growth, growth in earnings per share, increase in net income, solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 0.3%. Since the same quarter one year prior, revenues rose by 47.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • ADVANCE AUTO PARTS INC has improved earnings per share by 21.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. 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 ($7.61 versus $5.33).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Specialty Retail industry average. The net income increased by 21.3% when compared to the same quarter one year prior, going from $121.79 million to $147.73 million.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 48.07% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • 48.54% is the gross profit margin for ADVANCE AUTO PARTS INC which we consider to be strong. 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 4.97% trails the industry average.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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