Why Pep Boys Shares Plunged

Why Pep Boys Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of auto parts retailer The Pep Boys-Manny, Moe & Jack sank 10% today after its quarterly results disappointed Wall Street.

So what: The stock has surged in 2013 on improving fundamentals, but today's Q2 miss -- EPS of $0.02 versus the consensus of $0.14 on a revenue slip of 0.5% -- triggers plenty of concern over slowing growth going forward. In fact, same-store sales during the quarter fell 2.8%, suggesting that Pep Boys' competitive position is weakening a bit.

Now what: Management remains cautiously optimistic about the near-term. "As the weather has turned colder, tire sales have started to improve, with mid-level price points and branded tires leading the way," said President and CEO Mike Odell. "Competitive pressures, however, continue to challenge sales of lower price point tires." When you couple those competitive headwinds with the stock's near-20 forward P/E, I'd wait for a much wider margin of safety before buying in.

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