Everyone Said It Was Too Late to Buy This Retail Stock. They Were Wrong.

Wall Street analysts have been consistently hesitant on the growth prospects for Advance Auto Parts (NYSE: AAP) but it keeps managing to outperform.

It has consistently been rated a hold or sell over the past year or so, and that is largely the sentiment today.

In January, Morgan Stanley lowered its price target for the auto parts retail stock to $45 per share. And late last year, Bank of America dropped its rating to underperform and set a $40 per share price target, stating the company's turnaround plan could put pressure on free cash flow.

Image source: Getty Images.

Also, Goldman Sachs placed a sell rating on Advance Auto Parts stock and a price target of $49 per share, which recently pushed up to $54 per share.

Among the concerns, analysts expressed caution about the impact of executing its cost-reduction plan, its shrinking margins and free cash flow, and the impact of inflation and economic factors on earnings growth. All this followed a year in which net sales decreased 5% year over year, and the company barely broke even, reporting net income of $6 million.

There clearly was not a lot of positive sentiment for Advance Auto Parts stock heading into 2026, yet the stock has defied expectations.

Up 44% and exceeding expectations

Advance Auto Parts stock has performed better than most expected, rising 44% year to date to about $57 per share. It has been one of the best performers in the consumer goods sector.

The surge has been fueled by a first-quarter earnings report that took most of Wall Street by surprise as its turnaround plan began to pay off.

The plan, which called for closing some 700 underperforming stores, resulted in a 8% year-over-year reduction in expenses to $1.1 billion. At the same time, sales were 2.6%, flat year over year, but the first quarter of 2025 included $51 million in sales from stores that are now closed.

The strong sales were boosted by a 3.5% increase in same-store sales. This led to gross profit rising 6% to $1.18 billion and operating income jumping to $69 million, up from a $131 million net loss a year ago.

For this fiscal year, the company anticipates adjusted EPS of between $2.40 per share and $3.10 per share, which is 22% higher at the midpoint than the $2.26 adjusted EPS last year. Also, it expects free cash flow of $100 million, up from an outflow of $298 million in 2025.

Will AAP keep proving them wrong?

Will Advance Auto Parts keep proving analysts wrong? Currently, the stock has a median price target of $61 per share, suggesting about 6% upside.

But only 7% rate the stock as a buy, with 11% calling it a sell, and the rest say hold.

Adding to the concerns is its high valuation as it's trading at 56 times earnings. But that's skewed by poor results last year. Its more reasonable 22 times forward earnings and low price-to-sale ratio suggests AAP stock may have some more room to drive.

Bank of America is an advertising partner of Motley Fool Money. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.