Advance Auto Parts (AAP) Shares Drop 1.67% on Debt Concerns; Six-Day Slide Hits 20.37% as Liquidity Risks Mount

Advance Auto Parts (AAP) shares fell 1.67% on Thursday, marking a six-day losing streak with a 20.37% decline over the past week. The stock hit its lowest level since July 2025, with an intraday drop of 2.36%, reflecting deepening investor concerns over the company’s financial strategy and operational challenges.

The recent selloff was driven by AAP’s $1.5 billion debt issuance across two tranches, maturing in 2030 and 2033, alongside a new asset-based loan facility. This move, intended to refinance $250 million in 2026 debt and fund corporate needs, raised red flags about liquidity risks. With a cash burn rate of $250 million annually and a debt-to-equity ratio of 0.68, analysts highlighted heightened leverage concerns amid the company’s negative net margin (-4.37%) and return on equity (-1.97%).

Compounding the issue was the announcement of a $0.25 quarterly dividend, annualizing to a 1.7% yield but funded through debt or asset sales rather than operational cash flows. The negative payout ratio of -15.70% underscored the unsustainability of the payout, eroding investor confidence and signaling potential future cuts. This practice, coupled with weak Q2 2025 revenue of $2.01 billion—7.7% below year-over-year levels—fueled skepticism about management’s ability to stabilize earnings.

Analyst sentiment further pressured the stock, with a "Reduce" consensus rating and a $52.03 average target price, significantly below current levels. While some firms raised price targets to $65.00, the broader bearish outlook dominated, particularly after AAP’s FY 2025 guidance of 1.200-2.20 EPS failed to inspire confidence. Institutional investors, holding 88.70% of shares, have shown mixed activity, though recent selling pressure suggests short-term uncertainty ahead of clearer turnaround signals.

Market conditions also weighed on the stock, trading below both its 50-day ($59.35) and 200-day ($49.15) moving averages. A negative P/E ratio (-9.16) and beta of 1.08 highlighted AAP’s vulnerability to macroeconomic shifts and sector-specific headwinds. With a mid-cap market capitalization of $3.5 billion, the company faces added scrutiny amid rising interest rates and competitive pressures, leaving its near-term trajectory dependent on credible improvements in profitability and debt management.