Genuine Parts trades at $136.27 and has moved in lockstep with the market. Its shares have returned 10.9% over the last six months while the S&P 500 has gained 11.6%.
Is there a buying opportunity in Genuine Parts, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Genuine Parts Not Exciting?
We don't have much confidence in Genuine Parts. Here are three reasons you should be careful with GPC and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last six years, Genuine Parts grew its sales at a sluggish 4.7% compounded annual growth rate. This fell short of our benchmark for the consumer retail sector.
2. Flat Same-Store Sales Indicate Weak Demand
Same-store sales show the change in sales for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.
Genuine Parts’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Genuine Parts’s margin dropped by 3.4 percentage points over the last year. This decrease came from the higher costs associated with opening more stores.
Final Judgment
Genuine Parts isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 16.7× forward P/E (or $136.27 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.
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