Inflation hits Advance Auto Parts. Shares are drowning 📉

Advance Auto Parts is a major supplier of automotive replacement parts and components to the US aftermarket. The company reported financial results for the second quarter of the year below analysts' expectations. The stock is down more than 10%:

EPS of $3.74 vs. $3.76 forecast according to FactSet (up 10.3% y/y)

Revenue: $2.67 billion vs. $2.745 billion forecast according to FactSet (up 0.6% y/y)

• The company has lowered its annual revenue forecast by nearly $300 million, previously targeting $11.2 - $11.5 billion, now $11-11.2 billion, analysts expected $11.3 billion. Earlier in the year, the company said it was confident of achieving its long-term goals;
• Wall Street forecast a reduction in the company's margins as high inflation and rising fuel prices hit consumer demand, which is also reflected in the area of usage intensity and vehicle purchases. The company's CEO, Tom Greco, also commented on the situation in a similar way;
• During the pandemic, the availability of new and used cars was limited, making car users more likely to make repairs. Today, inflationary pressures and a broader market are causing car users to postpone vehicle repairs. In addition, the company's customers are often less affluent self-repairers, who have been hit hardest by inflation, forcing them to spend more on groceries and fuel;
• Wedbush analysts have lowered the company's target price from $215 to $200 although they remain bullish on the stock over the long term, with analyst Seth Basham pointing to the risk of lower operating margins in 2023 at 10.5 - 12.5%. Similarly, analysts at RBC are unconvinced about future margin growth;
• Americans are driving increasingly older cars, which could drive total sales of Advance Auto Parts and services. The average age of vehicles on U.S. roads is 12.2 years in 2022, up nearly 20% from 2008 figures when it was 10.3 years. Economic pressures and inflation could mean that the age of cars used by Americans could continue to rise.

Advance Auto Parts (AAP.US) company price, D1 interval. The company's shares have broken above the 200-session moving average, which coincides with the 23.6 Fibonacci retracement. Currently, the bears are testing the levels of $177, where the 38.2 abolition runs. You can see that demand is clearly having more trouble making up for losses against the pandemic period. A potential deep downward move could stop at $130, where the 61.8 and 71.6 Fibonacci retracement is located. The price-to-book ratio (P/B Ratio) at 4.36 points is almost double the index average. Source: xStation5