Shareholders of Genuine Parts would probably like to forget the past six months even happened. The stock dropped 22.7% and now trades at $107.87. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Genuine Parts, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Genuine Parts Not Exciting?
Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons there are better opportunities than GPC and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, Genuine Parts grew its sales at a sluggish 3.2% compounded annual growth rate. This was below our standard for the consumer retail sector.
2. Flat Same-Store Sales Indicate Weak Demand
Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Genuine Parts’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat.
3. Weak Operating Margin Could Cause Trouble
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Genuine Parts was profitable over the last two years but held back by its large cost base. Its average operating margin of 4.6% was weak for a consumer retail business. This result isn’t too surprising given its low gross margin as a starting point.
Final Judgment
Genuine Parts isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 13.8× forward P/E (or $107.87 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward an all-weather company that owns household favorite Taco Bell.
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