Advance Auto Parts Stock: A Classic Rebound Play in the Making

Key Points

• Advance Auto Parts is set up for a rebound that could be quick and sharp.
• Headwinds remain, but improvements have been made, and a return to growth is anticipated.
• Short interest is high and may fuel a squeeze when Q1 results are released. 

Advance Auto Parts NYSE: AAP stock can rebound in 2025. The company is working hard to simplify its structure and reposition itself for sustainable, profitable growth centered on improving store metrics and aggressively increasing store count. The company targets 30 new stores this year and another 100 by the end of 2027, good for nearly a 3% increase, and more are likely.

The real question is how high the stock price might get once the rebound begins, and it could be quite high due to factors including insider buying, institutional interest, capital return, and short-selling. 

Capital return will be a critical factor in this retail stock rebound because it was crucial to the stock price decline. The company boldly announced it had begun a series of aggressive dividend increases in 2020, only to fall flat a few years later. The struggle with growth, operational quality, and rising costs led to an 85% cut still in place.

The opportunity for investors and the potential catalyst is a dividend increase that could happen once growth resumes. Analysts forecast the company will revert to growth in the next fiscal year and sustain a modest CAGR thereafter, with margin improvement along the way. Adjusted earnings are predicted to grow at a more substantial double-digit CAGR through the middle of the next decade. 

The Sell-Side Sets Advance Auto Parts Stock Up For a Rapid Price Acceleration 

Sell-side activity is setting up Advance Auto Parts stock for a significant rally, with insiders and institutions buying and short interest high. Insider buying includes the CEO and a director. This is noteworthy because the Q1 purchases are the first significant buying in a year, and the volume set a multi-year high. The CEO’s purchases are small but telling, while the director roughly doubled his position in a conspicuous affirmation of the business. 

Regarding the institutions, they have bought this stock on balance in every quarter since Q4 2023, when the stock price imploded. Their activity hit a low point in mid-2024 but ramped up in Q3 and Q4 and again in Q1 2025 to hit a multi-year high. The group owns nearly 90% of the stock and provided a solid base of support in Q2 2025, which is compounded by analysts' sentiment. The analysts’ sentiment trends include a price target reset that weighs on the action but is offset by increasing coverage, firming sentiment, a solid Hold rating, and a forecast for 20% upside. 

The factor that sets AAP stock up for a rapid price advance is the short interest. The short interest is down from its peaks in 2021 and 2022 but remains high in early 2025. It is up compared to the back half of 2025 at nearly 15% and a headwind for the market that could quickly become a tailwind. The opportunity is for a short-covering rally or short squeeze caused by the return to growth and operational improvement that may be revealed in upcoming quarters. 

Advance Auto Parts Trading at Deep Value Levels 

The charts show Advance Auto Parts' deep value. Despite the business repositioning and improving outlook, the stock is trading at a 15-year low and well below the critical support levels set in 2018 and 2020. The market is overextended at these levels but shows signs of an impending reversal. Those include the bullish MACD and divergent stochastic, which indicate strengthening support and bulls regaining market control. 

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The question is how high the rebound may go, which could be significant. A rebound to reclaim highs set in 2024 is worth 100% of upside in 2025. However, critical resistance is near $45.75, and the long-term EMA still indicates a downtrend. It may remain in place because of external factors, including the tariff environment and competition from AutoZone NYSE: AZO and O’Reilly Automotive, which are growing in 2025.