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Last update on 2024-06-06

Advance Auto Parts (AAP) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Discover the 2023 Piotroski F-Score analysis of Advance Auto Parts (AAP) with a score of 6/9, assessing profitability, liquidity, and efficiency.

Knowledge hint:
The Piotroski F-Score is a number between 0 to 9 which reflects the strength of a company's financial position. It is based on 9 criteria involving profitability, liquidity, and leverage. This model helps investors identify stocks that are strong, undervalued investments.
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Short Analysis - Piotroski Score: 6

We're running Advance Auto Parts (AAP) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Criteria
Company has a positive net income?
1
Company has a positive cash flow?
1
Return on Assets (ROA) are growing?
0
Operating Cashflow are higher than Netincome?
1
Leverage is declining?
0
Current Ratio is growing?
1
Number of shares not diluted?
1
Cross Margin is growing?
0
Asset Turnover Ratio is growing?
1

Piotroski F-Score is between 0 and 9 and is used to show the strength of a company's financial health. This score considers profitability, liquidity, and leverage. Advance Auto Parts (AAP) achieved a score of 6. Specific findings include: 1. Positive net income of $29.735 million in 2023, although lower than in past years. 2. Positive cash flow from operations at $287.375 million, but the lowest in the last two decades. 3. A decline in Return on Assets (ROA) in 2023 compared to 2022. 4. Operating cash flow is significantly higher than net income. 5. Increased leverage ratio from 0.2892 in 2022 to 0.326 in 2023. 6. An increase in current ratio from 1.1096 in 2022 to 1.2015 in 2023. 7. Decrease in outstanding shares from 60.351 million in 2022 to zero in 2023. 8. Decline in gross margin from 0.4422 in 2022 to 0.4007 in 2023. 9. Slight increase in asset turnover ratio from 0.9226 in 2022 to 0.9304 in 2023.

Insights for Value Investors Seeking Stable Income

With a Piotroski score of 6, AAP displays moderate financial health. Positive indicators include positive net income and cash flow. However, declining ROA, increased leverage, and a drop in gross margin raise concerns. Investors might find this stock moderately attractive but should remain cautious due to potential risks in recent trends, like declining profitability and increasing debt. Further analysis and monitoring of future performance are recommended.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Advance Auto Parts (AAP)

Company has a positive net income?

The Piotroski F-score uses net income as a key indicator of profitability and operational performance.

Historical Net Income of Advance Auto Parts (AAP)

Reviewing the historical data for Advance Auto Parts (AAP), the net income of $29.735 million in 2023 is positive. This can be seen after a dramatic decrease from previous years where net income figures fluctuated in the higher range, such as $464.402 million in 2022 and peaking at $596.615 million in 2021. Despite the decline, the current positive net income will yield a score of 1 for this Piotroski criterion. This trend indicates an underperformance compared to the last two decades.

Company has a positive cash flow?

Cash Flow from Operations (CFO) represents the cash a company generates from its regular operating activities, excluding revenues from investments or secondary sources. It is a critical measure of a company's ability to generate sufficient cash flow to maintain and grow its operations without needing external financing.

Historical Operating Cash Flow of Advance Auto Parts (AAP)

For Advance Auto Parts (AAP) in 2023, the Cash Flow from Operations (CFO) is reported at $287,375,000. This metric is positive, making it a favorable parameter in the Piotroski Analysis, thus adding 1 point. However, comparing historical data exhibits a considerable downturn; 2023's CFO is the lowest in the past two decades. For instance, the average CFO over the last five years hovered around $825 million, significantly surpassing the most recent figure. This drop might raise concerns about the company's efficiency in cash generation from core operations. Monitoring future CFO trends will be essential to determine if 2023 was an anomaly or indicative of a concerning trend.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA): comparing ROA from the 2023 with 2022 ROA figures which determines the fraction of net income from total assets, indicating the effectiveness of management in using its assets to generate earnings.

Historical change in Return on Assets (ROA) of Advance Auto Parts (AAP)

In 2023, Advance Auto Parts (AAP) reported a Return on Assets (ROA) of 0.0025, a significant drop compared to the 0.0384 ROA observed in 2022. Such a sharp decline in ROA is not favorable, and hence, as per the Piotroski Analysis criteria, it results in a score of 0 for the ROA change criterion. Over the last 20 years, AAP had operating cash flows with a peak of $1.1 billion in 2021, demonstrating the potential for generating cash, but the decline in ROA suggests recent inefficiencies in asset utilization. In contrast, the industry median ROA has consistently been above 0.3 for the last two decades, thereby highlighting AAP's underperformance relative to its peers in 2023.

Operating Cashflow are higher than Netincome?

Explain the criterion for Advance Auto Parts (AAP) and why it is important to consider

Historical accruals of Advance Auto Parts (AAP)

Operating Cash Flow higher than Net Income is a criterion used to assess the quality of a company's earnings. In this context, for Advance Auto Parts (AAP), if the operating cash flow of $287,375,000 is compared to the net income of $29,735,000 in 2023, then the operating cash flow is significantly higher. This disparity suggests that AAP generates more cash from its operational activities than it reports in net income, highlighting robust business operations and effective cash management. Consequently, AAP earns 1 point for this criterion.

Liquidity of Advance Auto Parts (AAP)

Leverage is declining?

Change in leverage refers to changes in the ratio of a company's debt to its equity, reflecting shifts in its financial leverage, risk, and capital structure.

Historical leverage of Advance Auto Parts (AAP)

For Advance Auto Parts (AAP), the leverage ratio increased from 0.2892 in 2022 to 0.326 in 2023. This uptick signifies a rise in the company's debt relative to its equity. Over the past 20 years, AAP's leverage has fluctuated notably, hitting a low of 0.066 in 2009 and now peaking anew in 2023. This upward trend could indicate higher financial risk and warrants close monitoring of the company's debt management strategy. Consequently, the point allocated for this criterion is 0.

Current Ratio is growing?

The change in current ratio assesses a company's ability to pay short-term obligations with short-term assets. It's vital as it reflects liquidity and operational efficiency.

Historical Current Ratio of Advance Auto Parts (AAP)

Comparing the Current Ratio of Advance Auto Parts (AAP) from 2022 to 2023, we observe an increase from 1.1096 to 1.2015. This trend is positive and awards 1 point according to the Piotroski criteria. Over the past 20 years, AAP's current ratio has fluctuated, peaking at 1.5652 in 2018, and surpassing the 2023 industry median which stands at 1.55. Despite a lower trend compared to the industry's median in 2023, the upward movement in 2023 from 2022 is a favorable indication, emphasizing AAP's improved liquidity and operational efficiency.

Number of shares not diluted?

Change in Shares Outstanding examines if a company is using shares issuance to raise capital or if it is buying back shares, reflecting its management strategy and potential for ownership dilution.

Historical outstanding shares of Advance Auto Parts (AAP)

In 2023, Advance Auto Parts (AAP) reported 0 outstanding shares, decreasing from 60,351,000 in 2022. Over a 20-year span, AAP has progressively reduced its outstanding shares from a peak of 113,221,500 in 2004 to 0, suggesting a long-term trend of share buybacks. This reduction indicates a strong vote of confidence by the management and can yield positive effects on earnings per share (EPS). However, the complete absence of shares in 2023 is highly unusual and may warrant further investigation. In any case, due to the decrease, this criterion scores 1 point.

Operating of Advance Auto Parts (AAP)

Cross Margin is growing?

Gross Margin evaluates the core profitability of a company's operations, excluding indirect costs. An increasing margin indicates improved pricing or cost reduction, enhancing the company’s operational efficiency.

Historical gross margin of Advance Auto Parts (AAP)

Advance Auto Parts (AAP) reported a Gross Margin of 0.4007 in 2023, a decrease from 0.4422 in 2022. This drop in Gross Margin is unfavorable, scoring a 0 by this criterion. Additionally, a review over the past 20 years shows a declining trend, from a peak of 0.4998 in 2010 to 0.4007 in 2023, suggesting persistent underlying challenges. In contrast, the industry median GM in 2023 was 0.3785, indicating AAP is relatively still above industry standards but narrowing the gap considerably.

Asset Turnover Ratio is growing?

The Asset Turnover ratio reflects the efficiency with which a company uses its assets to generate sales. Higher values indicate better performance.

Historical asset turnover ratio of Advance Auto Parts (AAP)

The Asset Turnover ratio for Advance Auto Parts (AAP) has shown a slight increase from 0.9226 in 2022 to 0.9304 in 2023, marking a positive trend (+0.0078). According to Piotroski criteria, this would earn the company 1 point. Historical data reveals a significant reduction in the Asset Turnover ratio over the past 20 years, peaking at 1.8438 in 2010 and dropping below 1.0 since 2019. Therefore, while the increment in the last year is favorable, the long-term decline suggests operational inefficiencies and a need for strategic adjustments.


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