Shares in auto parts retailer Advance Auto Parts (AAP -7.07%) were lower by more than 8% as of 11 a.m. today. The move came after Goldman Sachs downgraded the stock from neutral to a sell, amid concerns that it was losing market share to competitors. In addition, the Goldman Sachs analyst believes the current valuation relies on a margin recovery, which might not occur in the current environment.
Slow going for Advance Auto Parts
It's hard enough for a Wall Street analyst to refrain from issuing a buy recommendation, so when a heavyweight like Goldman Sachs issues a sell rating, it has a significant impact.
The analyst's channel checks suggest that Advance Auto may be losing market share and experiencing margin pressure, a more significant concern than the company's current valuation. After all, if management can turn around the company's lackluster performance, then the earnings recovery can be dramatic.
Still, this is a company that's been in turnaround mode for over a decade, so a certain amount of skepticism is warranted. It's also a complicated trading environment. While management completed its store optimization program in March, it's still closing distribution centers, with a target to close 12 this year and end the year with 16, followed by the closure of another four next year.
Given the importance of logistics and ensuring in-store parts availability in this industry, it wouldn't be surprising if the company encounters some headwinds.
Image source: Getty Images.
Where next for Advance Auto Parts?
The only way the company can silence the doubters is by delivering on its guidance in 2025. If you believe the company is finally in turnaround mode, then today is a buying opportunity. However, cautious investors will look for at least a few quarters of evidence before drawing any conclusions worth acting on.
