Over the past six months, Genuine Parts’s shares (currently trading at $135.19) have posted a disappointing 8.4% loss, well below the S&P 500’s 13.5% gain. This 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? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Genuine Parts Not Exciting?
Even with the cheaper entry price, we don’t have much confidence in Genuine Parts. Here are three reasons you should be careful with GPC, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Genuine Parts’s sales grew at a sluggish 3.1% compounded annual growth rate over the last three years. This fell short of our benchmark 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 an important measure of profitability for retailers as it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.
Genuine Parts was profitable over the last two years but held back by its large cost base. Its average operating margin of 4.3% 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’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 16.8× forward P/E (or $135.19 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We’re pretty confident there are more exciting stocks to buy at the moment. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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