Advance Auto Parts vs. GameStop: Do Cars or Collectibles Make for a Better Buy for 2027?

Investors often weigh the stability of automotive maintenance against the volatile transformation of gaming. Choosing between Advance Auto Parts (NYSE:AAP) and GameStop (NYSE:GME) requires balancing current turnaround efforts with long-term capital strategies.

While both companies operate within the consumer discretionary sector, they serve very different niches. Advance Auto Parts provides essential components for vehicle maintenance through its extensive physical footprint. In contrast, GameStop is shifting from a purely physical media retailer into a company with significant cash reserves and non-traditional investment goals.

The case for Advance Auto Parts

As a major player among retail stocks, Advance Auto Parts provides automotive aftermarket parts to both professional mechanics and everyday car owners. In its latest annual report filed for FY 2025, the company highlighted that professional sales account for approximately 50% of its total revenue. The firm also supports over 800 independently owned Carquest locations and offers essential in-store services, such as battery installation.

During FY 2025, the company reported revenue of about $8.6 billion, which represented a decrease of roughly 5.4% compared to the previous year. Despite the decline in sales, the business achieved a net income of approximately $44.0 million, yielding a net margin of close to 0.5%. This profitability marks a significant recovery from the substantial net loss reported in the prior fiscal period.

As of its January 2026 balance sheet, the debt-to-equity ratio is nearly 2.4x, which compares total debt to shareholder equity to show reliance on borrowing. The current ratio is close to 1.7x, measuring the ability to cover short-term debts with liquid assets. Free cash flow, representing the cash generated after accounting for operations and equipment, was roughly negative $298 million.

The case for GameStop

GameStop operates as a specialty retailer for video games, entertainment software, and pop culture collectibles across more than 2,200 stores worldwide. According to its latest annual report for FY 2025, the company leverages its physical locations as fulfillment centers for e-commerce and as trade-in hubs for pre-owned goods. It also utilizes loyalty programs like GameStop Pro to maintain engagement with its core customer base of gaming enthusiasts.

In FY 2025, the company generated revenue of about $3.6 billion, a decrease of approximately 5.1% from the previous fiscal year. However, the business reported strong net income of roughly $418.4 million, resulting in a net margin of nearly 11.5%. This increase in profitability was driven by strategic cost management even as the broader gaming market shifted toward digital formats.

As of its January 2026 balance sheet, the debt-to-equity ratio is close to 0.8x, comparing total debt to shareholder equity to measure financial leverage. The current ratio is nearly 15.3x, indicating the ability to cover short-term obligations with assets convertible to cash within a year. Free cash flow, which is the cash remaining after paying for operations and capital equipment, reached approximately $597.3 million.

Risk profile comparison

Advance Auto Parts is currently managing risks associated with its 2024 Restructuring Plan, including high costs for lease terminations and potential delays in operational efficiency. The company faces intense competition from established chains like AutoZone Inc. (NYSE:AZO) and O'Reilly Automotive (NASDAQ:ORLY). Additionally, a heavy reliance on aging information systems and global supply chains exposes the business to potential data breaches and inventory disruptions.

GameStop faces a significant threat from the industrywide shift toward digital downloads, which reduces the demand for physical hardware and software. This trend increases competitive pressure from console makers like Microsoft Corp. (NASDAQ:MSFT) and Nintendo (OTC:NTDOF). Furthermore, the company deals with risks related to its investment in Bitcoin and its pursuit of large acquisitions, such as a previously discussed deal for eBay Inc. (NASDAQ:EBAY).

Valuation comparison

Advance Auto Parts is cheaper by P/S ratio, while GameStop has a lower Forward P/E based on future earnings estimates.

Valuation metrics include those sourced from Financial Modeling Prep (FMP) and may differ from those of other data providers.

Which stock would I buy for 2027?

Advance Auto Parts is in the midst of turning around the struggles it has experienced over the past few years, including sales growth, margins, and market share. The aftermarket auto parts business has been in a slump, largely due to a mix of factors: weak do-it-yourself demand, vehicle electrification, intense competition, and general pocketbook pressures on consumers.

Company management has been addressing the business's issues by rolling out a new multi-year turnaround program. That started in late 2024, including closing stores, optimizing store footprints, and overhauling its supply chain--for instance, reducing the number of carriers by 70% through consolidated shipments. To date, the turnaround program has had mixed success, especially in the first quarter of fiscal 2026, with results much better than expected: revenue of $2.6 billion and net income of $25 million. The second quarter disappointed on revenue, with $2 billion in sales, but net income did beat expectations. at $55 million. Analysts see full-year 2026 sales a little lower year-over-year at around $8.5 billion, but with improving net income, expected to come in at around $165 million, roughly four times 2025.

GameStop, meanwhile, has benefited greatly from its recent move to emphasize trading cards and collectibles alongside its video game business, and it is paying off. It caught many investors' eyes when it made an unsolicited bid to buy eBay earlier this year, too. Though that was rejected, reports say the CEO, Ryan Cohen, is still pursuing options around eBay, including striking a partnership with the business. Cohen has shown a lot of faith in his ability to boost GameStop's business. He's been a heavy buyer of company shares of late.

In its most recent quarter, net sales were $790.2 million, compared to $972.2 million in the prior year's second quarter. The decrease primarily reflects the prior-year launch of Nintendo Switch 2, planned store closures, and the divestiture of the company's France operations.

There were big positives, though: collectibles net sales were $356.3 million for the second quarter, or 45% of net sales, compared to $227.6 million, or about 23% of net sales, in the prior year's second quarter. Its pivot appears to have momentum.

So which turnaround play is the better buy? The bargain-basement P/S ratio of Advance Auto Parts may be tempting, but such a low level reflects serious skepticism on Wall Street about its ability to make money. GameStop comes at a decent P/S and a cheaper forward P/E, which makes it the better bet for long-term investors.

Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft, Nintendo, and eBay. The Motley Fool has a disclosure policy.