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For Your Education and Enjoyment Advance Auto Parts is A Great Risk/Reward Play If EPS DeliversWritten by Gabriel Osorio-Mazilli. Published 9/22/2025. 
Key Points - The current setup in the automotive industry has a few similarities to that of the post-COVID-19 environment, creating a new opportunity.
- Advance Auto Parts is exposed to another cycle of outperformance in the industry, with the right fundamental setup.
- Institutions are buying ahead of the forecasted EPS expansion scenario that's coming to this stock.
Earnings per share (EPS) growth is one of the primary drivers of stock performance. Investors can uncover upside opportunities by targeting companies trading well below their relative highs but poised to reclaim those levels as EPS growth materializes. In the automotive sector, one company fits this profile—trading at a discount yet offering significant upside, provided it meets its EPS targets. This creates an attractive risk-reward setup for buyers. Even if the company falls short of its growth targets, the downside is limited by its already modest valuation. That company is Advance Auto Parts Inc. (NYSE: AAP), a leading supplier of aftermarket parts to both bulk and retail customers. Given current trade tariffs affecting the supply and demand of new and used vehicles in the U.S., Advance Auto Parts is well-positioned to deliver on its EPS forecasts. Breaking Down the Advance Auto Parts Setup Advance Auto Parts now trades at roughly 85% of its 52-week high, despite a year-to-date rally of 28.2%. However, when investors zoom out, the stock remains a shadow of its 2022 peak near $244 per share, which was driven by similar industry dynamics. Back then, COVID-19 lockdowns disrupted semiconductor and chip imports, making new vehicles scarce and pushing buyers into the used car market. Today, while the situation isn't as severe, tariffs have created a comparable headwind for new-vehicle production. Rising costs and longer lead times have made new cars harder to obtain, so consumers are turning to used vehicles. Those cars require more maintenance, boosting demand for aftermarket parts among both dealers prepping vehicles for resale and individual owners keeping their current cars on the road. Regardless of the path—buying used or maintaining an existing vehicle—demand for parts is set to rise. This dynamic underpins the MarketBeat EPS consensus forecast of $1.05 by Q3 2025. Momentum Arrives Early Wall Street expects EPS to jump 52%, from the current $0.69 to around $1.05. Notably, the latest quarterly EPS of $0.69 surpassed the $0.59 consensus, suggesting these industry tailwinds are already materializing. Retail investors can also use the price/earnings-to-growth (PEG) ratio to assess valuation. At a PEG of 0.3, Advance Auto Parts appears to have only priced in about 30% of its anticipated growth, implying substantial upside remains. Another sign of confidence comes from institutional investors. As of August 2025, State Street boosted its Advance Auto Parts stake by 13.5%, raising holdings to $111.9 million, or roughly 4% of the company. Between momentum and strong fundamentals, pros are positioning for further gains. Finally, investors should note one more factor affecting AAP's risk-reward profile. With a market cap of $3.6 billion, Advance Auto Parts is relatively small, making it easier to double in size compared to much larger peers. Conversely, a major negative catalyst would be required to push the stock significantly lower, suggesting downside risk is limited relative to upside potential.
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