Advance Auto Parts, Inc. (AAP): A Bull Case Theory

We came across a bullish thesis on Advance Auto Parts, Inc. on Valueinvestorsclub.com by Woodrow. In this article, we will summarize the bulls’ thesis on AAP. Advance Auto Parts, Inc.'s share was trading at $49.59 as of January 28th. AAP’s trailing and forward P/E were 174.78 and 19.34 respectively according to Yahoo Finance.

Advance Auto Parts, Inc. engages in the provision of automotive aftermarket parts in the United States and internationally. AAP represents a compelling turnaround investment under the leadership of CEO Shane O’Kelly, who joined in September 2023. The company serves both professional (“DIFM”) and do-it-yourself (“DIY”) customers through 4,292 stores and 842 independent Carquest locations across the U.S. Recent bold strategic actions—including selling Worldpac for $1.5 billion, closing 500 underperforming stores, and rationalizing its distribution network—have simplified and strengthened the business, enabling faster delivery times and improved cost visibility.

These moves, coupled with Mr. O’Kelly’s supply chain expertise and a strong executive team, position AAP to achieve its 2027 operating margin target of 7%, well above the street’s expectations. Inflation driven by tariffs provides additional upside by boosting same-store sales in the inelastic auto parts market, potentially adding $90 million to operating income without margin erosion.

The turnaround is further supported by enhanced market positioning, with the company now holding the top or second-highest market share in 75% of its footprint. AAP’s balance sheet is healthy, with over $3 billion in cash and minimal net debt, setting the stage for future capital returns once investment-grade credit status is regained. Normalizing leverage and working capital could unlock approximately $2.2 billion, or 65% of market capitalization, for shareholders.

AAP currently trades at a 6.1x EV/EBITDA multiple on 2026 consensus estimates, a steep discount to the 16.3x peer average. Even applying a conservative 10x multiple to 2026 EBITDA implies $105.81 per share, while 2027 targets suggest $149.04, offering 166% upside. With strong execution, margin expansion, and multiple rerating potential, AAP provides a unique risk/reward opportunity for investors in the automotive aftermarket sector.

Previously, we covered a bullish thesis on Advance Auto Parts, Inc. (AAP) by Stock Analysis Compilation in December 2024, which highlighted the company’s turnaround under CEO Shane O’Kelly, operational improvements, and the $1.5 billion sale of WorldPac to strengthen the balance sheet. AAP’s stock price has appreciated by 18.18% since our coverage. Woodrow shares a similar thesis but emphasizes additional strategic actions, margin targets, tariff-driven inflation benefits, and potential capital returns, providing a more detailed outlook on 2027 upside.

Advance Auto Parts, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 32 hedge fund portfolios held AAP at the end of the third quarter which was 34 in the previous quarter. While we acknowledge the potential of AAP as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.