Is it time to put Advance Auto Parts (NYSE: AAP) on your watch list?
For newbies, it might seem like a good idea (and an exciting prospect) to buy a business that tells investors a good story, even if it lacks a history of revenue and profit altogether. But as Warren Buffett put it, “If you’ve been playing poker for half an hour and you still don’t know who the noise is, you are the noise.” When buying such historical stocks, investors are too often the fools.
Contrary to all this, I prefer to spend time on companies like Advanced auto parts (NYSE: AAP), which not only has revenue, but also profits. While that doesn’t make stocks worth buying at all costs, you can’t deny that successful capitalism ultimately requires profits. While a well-funded business can suffer losses for years, unless its owners have an endless appetite to subsidize the customer, it will eventually have to generate a profit, or else take its last breath.
Check out our latest review for Advance Auto Parts
Advance Auto Parts earnings per share increase.
If a company can sustain earnings per share (EPS) growth long enough, its stock price will eventually follow. Therefore, there are a lot of investors who like to buy stocks in companies with growing EPS. Over the past three years, Advance Auto Parts has increased its EPS by 11% per year. It’s a great rate, if the company can keep it up.
I like to see top line growth as an indication that growth is sustainable, and I look for a high profit margin before interest and taxes (EBIT) to indicate a competitive gap (although some low-margin companies also have ditches). The good news is that Advance Auto Parts is increasing revenue and EBIT margins improved by 2.4 percentage points to 9.2% compared to last year. Checking those two boxes is a good sign of growth in my book.
In the graph below, you can see how the business has increased its profit and revenue over time. For more details, click on the image.
Fortunately, we have access to analyst forecasts from Advance Auto Parts. to come up profits. You can make your own predictions without looking, or you can take a look at what the pros are predicting.
Are Advance Auto Parts insiders aligned with all shareholders?
We wouldn’t expect to see insiders owning a significant percentage of a $ 14 billion company like Advance Auto Parts. But we are reassured by the fact that they have invested in the company. Indeed, they hold 48 million US dollars of its shares. That’s a lot of money, and that’s no small incentive to work hard. Although it only represents 0.3% of the business, the value of this investment is enough to show that insiders have a lot going on in the business.
It’s good to see insiders invested in the company, but are the pay levels reasonable? A brief analysis of CEO compensation suggests they are. For companies with market capitalizations over $ 8.0 billion, like Advance Auto Parts, the median CEO salary is around $ 11 million.
The CEO of Advance Auto Parts received US $ 8.1 million in compensation for the year ending. This is lower than the average for similar sized companies and seems pretty reasonable to me. Although the level of CEO compensation is not a big factor in my view of the company, modest compensation is positive, as it suggests that the board has the interests of shareholders in mind. It can also be a sign of a culture of integrity, in the broad sense.
Should You Add Advance Auto Parts To Your Watchlist?
A positive point for Advance Auto Parts is that it increases EPS. It’s nice to see. Profit growth may be Advance Auto Parts’ main game, but the fun is not. not stop there. With both modest CEO pay and considerable insider ownership, I would say this one is at least worthy of the watchlist. However, be aware that Advance Auto Parts displays 1 warning sign in our investment analysis , you must know…
Of course, you can (sometimes) buy stocks that are not growing income and not have insiders who buy stocks. But as a growth investor, I always like to check out companies that do have these characteristics. You can access a free list of them here.
Please note that the insider trading discussed in this article refers to reportable trades in the relevant jurisdiction.
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