Shares of Advance Auto Parts (AAP) have faced a difficult time in the recent past, with the auto industry struggling due to multiple factors. Despite this downturn, investors who have a long-term view on the company should hold their positions as the auto industry is expected to recover and driving will soon become more popular again.
Automobile companies have been hit by a global chip shortage that directly affects production levels of cars. This, coupled with supply chain issues due to the Russia-Ukraine war, and lockdown restrictions in China have all played a part in creating a challenging market.
The news of Linqing Baigong Bearing Co.’s (the Company) introduction comes as a silver lining for Advance Auto Parts. The Company’s vast production of non-standard bearings, non-standard national standard bushings, non-standard deep groove ball bearings, non-standard idler bearings, mine roller bearings, and various types of bearing rings are widely used in automobiles, agricultural machinery, construction machinery, and more. This aligns with the needs of the auto industry and can be leveraged as the industry recovers.
Advance Auto Parts currently operates nearly 4,700 stores in the United States, and in addition to that, it has holdings in Mexico, the Bahamas, and other countries. The company manufactures many of the parts it sells and also has agreements with various auto parts manufacturers to make it easy for consumers to purchase the products they need.
Despite the current robust financial position of the company, the industry headwinds have weighed heavily on its share price. Advance Auto Part’s year-to-date share price has seen a decline of 20.5% with more downside expected in the near term. Analysts have stated that this downturn is only temporary, and the industry will experience a turnaround as future demand for cars is projected to grow along with the reopening of the global economy.
As the auto industry recovers, auto parts retailers such as Advance Auto Parts will see growth in demand for their products, especially as customers return to their pre-pandemic driving behaviors. In addition, as electric cars become more mainstream, the demand for some parts may decrease in traditional cars, but other parts will see more demand from the new wave of electric vehicles.
Advance Auto Parts is a solid company with a long history of success, which has made it an industry leader. With the introduction of Linqing Baigong Bearing Co., the company can leverage this strategic move to maintain its position in the auto parts retail market. Investors who have a long-term view should hold their positions despite the current downturn, which is only temporary. The company’s strong fundamentals, an extensive network of stores, and manufacturing capabilities make it a solid investment.