Advance Auto Parts (NYSE:AAP) has reported a return on capital employed (ROCE) of 7.9%, falling behind the Specialty Retail industry's average of 13%, according to data up until July 2023. This figure marks a decrease from 13% over the past five years, suggesting a decline in efficiency in the use of capital in its business operations.
The company's ROCE was calculated using an earnings before interest and taxes (EBIT) of US$573 million, total assets of US$12 billion, and current liabilities of US$5.0 billion. Even with steady sales, the company's profitability appears to be under pressure. This is confirmed by the InvestingPro data, which shows an EBITDA growth of -15.9% as of LTM2023.Q2.
Advance Auto Parts has been operating as a compounding machine, consistently reinvesting its earnings for future growth. As per InvestingPro Tips, the management has been aggressively buying back shares and has even raised its dividend for 3 consecutive years. The company has also maintained dividend payments for 18 consecutive years, a testament to its commitment to shareholder returns.
Yet, it's worth noting that Advance Auto Parts is operating with a significant debt burden. This, coupled with a declining trend in earnings per share, could be a cause for concern. The company's net income is expected to drop this year, and the stock has fared poorly over the last month. In fact, InvestingPro data shows a 1-month price total return of -17.32% as of Y2023.D275.
Despite these challenges, analysts predict the company will be profitable this year, and it has been profitable over the last twelve months. The company's P/E ratio stands at 9.32, with an adjusted P/E ratio for LTM2023.Q2 at 8.95, according to InvestingPro data.
Investors should monitor the company's bottom line to determine whether these reinvestments are leading to increased profitability. This is particularly important given the company's significant debt burden and the recent decline in its stock price. For more insights like these, consider checking out InvestingPro, which offers a wealth of additional tips and real-time metrics for informed investment decisions.
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