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Why Advance Auto Parts Stock Dropped 30% in March

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

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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.

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Advance Auto Parts, Inc. Stock Quote
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