Is it safe to buy Advance Auto Parts shares after solid Q3 results?

On Tuesday Advance Auto Parts Inc. (NYSE:AAP) shares edged lower by nearly 4% after reporting its fiscal third-quarter results. The company announced its most recent quarterly results Monday after markets closed, beating the consensus for Street expectations on revenue and earnings. AAP also raised its FY2021 guidance on net sales and adjusted operating income.

The company posted FQ3 non-GAAP earnings per share of $3.21, beating the average for analyst estimates of $2.85. On the other hand, its GAAP EPS of $2.68 missed the estimate of $2.85, while revenue for the quarter increased by 3.1% from the same quarter last year to $2.6 billion, surpassing expectations by $20 million.

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Advance Auto Parts also raised its FY2021 net sales guidance to the range from $10.9 billion to $10.95 billion from $10.6 billion to $10.8 billion, previously. In addition, AAP now expects an adjusted operating income margin in the range of 9.4%-9.5% from the previous forecast of 9.2% to 9.4%.

Is Advance Auto Parts undervalued?

From an investment perspective, Advance Auto Parts shares trade at a compelling forward P/E ratio of 18.17, making the stock a compelling option for value investors.

In addition, analysts forecast its earnings per share to grow by 11.25% next year, before rising at an average annual rate of 14.50% over the next five years.

Therefore, long-term investors could also find it as an exciting option for their portfolios.

Technically, Advance Auto Parts shares seem to be trading within an ascending channel formation in the intraday chart. However, the stock has recently pulled back to recover from overbought conditions.

Therefore, with shares yet to retest the trendline support, the current decline could continue, pushing it towards oversold conditions.

Investors could target extended declines at about $225.47, or lower at $217.90. On the other hand, if the stock bounces back before retesting the trendline support, it could find resistance at about $239.73, or higher at $247.29.

It could be time to take profits

In summary, although AAP shares trade at a compelling valuation multiple, this year’s rally of nearly 48% leaves little room for more upward movement.

Therefore, it could be time to take some profits before the rally resumes.

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