This Growth Stock Has Market-Beating Potential

Auto parts may not be the hottest sector in the stock market, but you might be surprised by how well some auto parts stocks have performed.

As you can see from the chart below, both O’Reilly Automotive and AutoZone have easily beaten the S&P 500 over the last decade.

Auto parts have a number of benefits as a sector because the industry is essentially recession-proof; fixing your car is a cheaper alternative than buying or leasing a new or used one, and the rising prices of cars means that parts prices will also go up.

While O’Reilly and AutoZone have demonstrated their ability to deliver strong returns for investors over a long period of time, there’s another auto parts stock that investors should get to know. That’s small-cap e-commerce player (PRTS), which surged in the early stages of the pandemic and has seen steady growth in more recent quarters. stock is now down more than 75% from its peak in 2021, setting up a potential rebound opportunity for investors.

What you need to know about
The auto parts e-commerce specialist dates back to 1995 and was known as U.S. Auto Parts Network for most of its history. However, new management took the company over a few years ago, streamlined the business under the brand, and renamed it in 2020.

As an online-only auto parts company, has a number of advantages over its brick-and-mortar competitors. Most of its merchandise is private label, allowing it to undercut competitors on price. After opening up several distribution centers around the U.S., it’s able to ship its products to most of the country in two days, allowing its customers to get back on the road quickly. has also begun partnering with mechanics in select parts of the country to provide a “do-it-for-me” service where customers can order the part they need and then get it installed by a local mechanic. The company said do-it-for-me bookings doubled between the third and fourth quarters. Over the long term, envisions having a mobile mechanic that will come to the customer’s home to do some jobs.

The stock has drifted lower since its Q4 earnings report earlier in March even as the company delivered solid results, with revenue increasing 12% year over year to $154.5 million, topping analysts’ estimates for $151.8 million.

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell slightly in the quarter, from $2.6 million to $2.1 million, and the company reported a per-share loss of $0.11, matching the analyst consensus but improving versus a per-share loss of $0.10 in the year-ago period.

Why this stock has market-beating potential is taking a conservative approach to 2023, focusing on increasing free cash flow and growing gross profit dollars in an uncertain economy.

Over the long term, the company is aiming to deliver to 80%-90% of the country in just one day, and the early signs of demand in the do-it-for-me business are a promising indication that it can gain market share by finding new ways to provide convenience. Finally, its pricing advantage should also help attract customers, and with little of the auto parts market served by online retail, there should be a long runway for growth.

Despite that opportunity, stock trades at a price-to-sales ratio of just 0.5 and only 13 times adjusted EBITDA.

Investors may have to be patient through 2023 given the uncertainty, but if the company can execute on its long-term initiatives and continue to grab market share, the stock has a lot of room for growth.

— Jeremy Bowman

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Source: The Motley Fool