Will Advance Auto (NYSE:AAP) low risk outlook last untill December?

Advance Auto is generating 0.0208% of daily returns assuming volatility of 1.3756% on return distribution over 90 days investment horizon. As many investors are getting excited about consumer cyclical space, it is fair to recap Advance Auto Parts. We are going to focus on if the current expected returns justify Advance Auto's volatility.
Published over a year ago
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Reviewed by Michael Smolkin

Advance Auto Parts has roughly 1.14 B in cash with 822.96 M of positive cash flow from operations. This results in cash-per-share (CPS) ratio of 16.62.
Volatility is a rate at which the price of Advance Auto or any other equity instrument increases or decreases for a given set of returns. It is measured by calculating the standard deviation of the annualized returns over a given period of time and shows the range to which the price of Advance Auto may increase or decrease. In other words, similar to Advance's beta indicator, it measures the risk of Advance Auto and helps estimate the fluctuations that may happen in a short period of time. So if prices of Advance Auto fluctuate rapidly in a short time span, it is termed to have high volatility, and if it swings slowly in a more extended period, it is understood to have low volatility. Please read more on our technical analysis page.

How important is Advance Auto's Liquidity

Advance Auto financial leverage refers to using borrowed capital as a funding source to finance Advance Auto Parts ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Advance Auto financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Advance Auto's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Advance Auto's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the breakdown between Advance Auto's total debt and its cash.

Advance Auto Gross Profit

Advance Auto Gross Profit growth is one of the most critical measures in evaluating the company. The Gross Profit growth rate is calculated simply by comparing Advance Auto previous period's values with its current period's values. Each time period you're measuring should be of equal lengths the increase or decrease, in a company's Gross Profit between two periods. Here we show Advance Auto Gross Profit growth over the last 10 years. Please check Advance Auto's gross profit and other fundamental indicators for more details.

Advance Auto Volatility Drivers

Advance Auto unsystematic risk is unique to Advance Auto Parts and usually not directly affected by the market or economic environment. An example of unsystematic risk is the possibility of poor earnings or a layoff due to coronavirus. One may mitigate nonsystematic risk by buying different securities in the same industry or by buying in different sectors. For example, if you have a position in Advance Auto you can also buy Hanover Foods. You can also mitigate this risk by investing in the consumer discretionary sector as well as in companies having nothing to do with it. This type of risk is also called diversifiable risk and can be understood from analyzing Advance Auto important indicators over time. Here we run a correlation analysis between relevant fundamental ratios over at least ten year period to find a relationship in the way they react to changes in Advance Auto income statement and balance sheet. Here are more details about Advance volatility.
0.87-0.570.980.77-0.560.76-0.490.80.750.11-0.73-0.460.660.140.080.090.41
0.87-0.320.950.54-0.30.51-0.650.550.48-0.19-0.62-0.640.71-0.23-0.230.20.25
-0.57-0.32-0.51-0.461.0-0.430.15-0.74-0.81-0.480.280.08-0.35-0.24-0.20.41-0.21
0.980.95-0.510.68-0.50.65-0.590.710.66-0.02-0.69-0.570.730.0-0.030.140.38
0.770.54-0.460.68-0.480.82-0.320.730.670.16-0.57-0.30.350.160.00.210.15
-0.56-0.31.0-0.5-0.48-0.460.1-0.76-0.83-0.540.260.03-0.34-0.29-0.240.43-0.23
0.760.51-0.430.650.82-0.46-0.010.880.820.41-0.490.030.40.40.23-0.040.39
-0.49-0.650.15-0.59-0.320.1-0.010.010.060.690.560.98-0.390.420.31-0.60.01
0.80.55-0.740.710.73-0.760.880.010.990.54-0.430.060.540.340.2-0.330.42
0.750.48-0.810.660.67-0.830.820.060.990.63-0.340.110.490.380.25-0.410.39
0.11-0.19-0.48-0.020.16-0.540.410.690.540.630.230.68-0.120.590.48-0.660.14
-0.73-0.620.28-0.69-0.570.26-0.490.56-0.43-0.340.230.52-0.60.05-0.01-0.16-0.38
-0.46-0.640.08-0.57-0.30.030.030.980.060.110.680.52-0.380.480.38-0.630.1
0.660.71-0.350.730.35-0.340.4-0.390.540.49-0.12-0.6-0.38-0.05-0.05-0.120.61
0.14-0.23-0.240.00.16-0.290.40.420.340.380.590.050.48-0.050.92-0.150.64
0.08-0.23-0.2-0.030.0-0.240.230.310.20.250.48-0.010.38-0.050.92-0.220.7
0.090.20.410.140.210.43-0.04-0.6-0.33-0.41-0.66-0.16-0.63-0.12-0.15-0.22-0.2
0.410.25-0.210.380.15-0.230.390.010.420.390.14-0.380.10.610.640.7-0.2
Click cells to compare fundamentals

Breaking down Advance Auto Indicators

The recent indifference towards the small price fluctuations of Advance Auto Parts could raise concerns from insiders as the firm it trading at a share price of 155.42 on slow start in volume. The company executives did not add any value to Advance Auto investors in October. However, most investors can still diversify their portfolios with Advance Auto Parts to hedge their inherited risk against high-volatility market scenarios. The stock standard deviation of daily returns for 30 days investing horizon is currently 1.38. The below-average Stock volatility is a good sign for longer-term investment options and for buy-and-hold investors.

Advance Auto is epected to finish above $152 in December

The expected short fall is down to -1.1 as of today. Advance Auto Parts has relatively low volatility with skewness of 0.03 and kurtosis of 0.3. However, we advise all investors to independently investigate Advance Auto Parts to ensure all accessible information is consistent with the expectations about its upside potential and future expected returns.

Our Conclusion on Advance Auto

Although some firms in the specialty retail industry are either recovering or due for a correction, Advance Auto may not be performing as strong as the other in terms of long-term growth potentials. In closing, as of the 10th of November 2020, our analysis shows that Advance Auto barely shadows the market. The firm is fairly valued and projects low odds of distress for the next 2 years. Our actual 30 days advice on the firm is Hold.

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Editorial Staff

This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Macroaxis LLC and Vlad Skutelnik do not own shares of Advance Auto Parts. Please refer to our Terms of Use for any information regarding our disclosure principles.

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