Please ensure Javascript is enabled for purposes of website accessibility

Why Advance Auto Parts Stock Dropped 30% in March

By Demitri Kalogeropoulos - Apr 8, 2020 at 12:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The vehicle parts supplier is dealing with a significant, if short-term, business disruption.

What happened

Advance Auto Parts (AAP -2.66%) stock declined 30% last month, a steeper loss than the 12.5% dip taken by the S&P 500, according to data provided by S&P Global Market Intelligence. So far in 2020, the auto parts retailer's shares are down 36%.

A man shopping for auto supplies.

Image source: Getty Images.

So what

The company was caught up in the market turmoil caused by the  COVID-19 pandemic and the prospect that efforts to stem its spread will push economies around the world into contraction.

Advance Auto Parts could benefit from slightly sluggish economic conditions -- during downturns, people tend to hold on to their cars longer, choosing to maintain older automobiles rather than buying new ones. Yet that doesn't protect the company from the social-distancing efforts that brought most retailing to a near halt in recent weeks, and caused the average miles driven to plummet.

Now what

Advance Auto Parts has drawn down on its credit facility to provide it with the liquidity it will need as it attempts to navigate this period of limited operations across much of its sales network. The slump should be temporary, which means the stock might quickly recover lost ground as the COVID-19 threat diminishes. But for now, investors are taking a cautious approach to this company's stock given the uncertainty regarding both the scope and timing of that anticipated economic rebound. Advance Auto Parts' next quarterly earnings announcement is set for late May.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Advance Auto Parts, Inc. Stock Quote
Advance Auto Parts, Inc.
AAP
$178.75 (-2.66%) $-4.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.