If you had to pick out an idea for an exciting enterprise, Valvoline (VVV) – which specializes in retail automotive services, particularly oil changes – probably wouldn’t even crack the top 200 list. However, in terms of relevance, VVV stock deserves more respect. Yes, the world may be pivoting toward electric vehicles. However, the vast majority of U.S. drivers still operate combustion-powered vehicles.
While it’s certainly not a market idea that’s likely to make you rich, fundamentally over the long run, VVV stock should keep you afloat. And for the most part, that’s what it has done. In the trailing five years, shares gained over 66% of equity value. No, it’s nothing to write home about. However, Valvoline also allows investors to sleep a bit easier at night.
In addition, a key trend in the consumer economy should enhance Valvoline's relevance, thus potentially driving demand for VVV stock. At a time when retail investors are chasing the flavors of the week that might not pan out, the auto services provider arguably offers a baseline for confidence building.
VVV Stock Rises Afterhours Following Strong Fiscal Q3
For starters, those interested in VVV stock have an immediate reason to consider the underlying opportunity: Valvoline recently disclosed strong results for its fiscal third quarter of 2023 earnings report, leading to a swing higher on Wednesday’s afterhours session.
Specifically, Valvoline posted a profit of $61.6 million, translating to 38 cents per share. When adjusted for non-recurring costs and to account for discontinued operations, earnings came out to 43 cents per share. Notably, the figure beat Wall Street’s forecast, which called for earnings per share of 37 cents.
On the top line, Valvoline rang up sales of $376.2 million. This tally too beat the Street’s consensus estimate, which anticipated revenue of $363.9 million.
Not surprisingly, VVV stock represented one of the highlights for unusual stock options volume. Following the closing bell for the midweek session, total volume reached 8,065 contracts against an open interest reading of 7,538. Further, the delta between the Wednesday session volume and the trailing one-month average metric came out to 1,295.33%.
Conspicuously, call volume dominated the day’s transactions, hitting 6,565 contracts against put volume of 1,500. This pairing yielded a put/call volume ratio of 0.23. However, the put/call open interest ratio currently stands at a lofty 1.2X.
Nevertheless, analysts are optimistic about VVV stock overall, pegging it a consensus moderate buy. This assessment breaks down as three strong buys, one moderate buy and three holds. As well, the experts’ median price target comes in at $41.67, which implies almost 19% upside potential. The high-side target stands at $45, implying over 28% growth.
Also worth noting is the Barchart Technical Opinion indicator, which rates VVV stock as a 24% buy. Granted, it’s not the most convincing of indicators. However, as long as shares don’t slip too drastically below the $34 horizontal support line, they should start gradually marching higher.
This thesis stems from a compelling (albeit cynical) trend in the consumer economy.
Hurting Consumers Translates to Greater Demand for Valvoline
Last year, S&P Global Mobility reported that the average age of vehicles on U.S. roadways in 2021 hit a then-record 12.2 years. As Barchart content partner Zacks pointed out, this figure marked the fifth consecutive year of increase in the underlying metric.
And you know what? It’s getting worse.
According to an AP report earlier this year, the average age hit 12.5 years. In addition, sedans are even older at 13.6 years. Put it all together, consumers are hurting from the high prices impacting vehicles (among other products) and are holding onto their rides for longer than ever.
On surface level, this framework doesn’t seem to help VVV stock and the broader retail sector. If consumers are hurting that much, they might not be able to pay for various services, some of them being critical. However, this situation also means that average households are not yet able to make the pivot to EVs.
Further, in order to keep these aging cars on the road as long as possible, maintenance would be an absolute must. Under this context, drivers may view Valvoline as a relative discount. Rather than be burdened with high monthly payments (assuming a financing approach), folks can just pay for oil changes and other services every few months.
So yes, while VVV stock may be boring, it’s surprisingly relevant. Therefore, it’s worth a look for those seeking an alternative investment.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
