Amidst a daily loss of -7.6%, a modest 3-month gain of 1.97%, and a notable Loss Per Share of 1.36, investors are poised with a crucial question: Is Sonic Automotive Inc (SAH, Financial) modestly undervalued? This valuation analysis aims to shed light on this query, encouraging a detailed examination of the company's financial standing and market potential.
Company Introduction
Sonic Automotive Inc (SAH, Financial), one of the largest auto dealership groups in the United States, has a significant presence across the country. With 108 franchised stores and additional used-vehicle and collision centers, Sonic Automotive boasts a diverse revenue stream from vehicle sales, parts, repair services, finance, insurance, and wholesale auctions. Luxury and import dealerships contribute notably to their revenue, with brands like Honda, BMW, Mercedes, and Toyota being central to their sales. The company's recent acquisition of RFJ Auto added a substantial $3.2 billion in sales, marking a notable expansion. This financial snapshot sets the stage for a deeper dive into Sonic Automotive's intrinsic value, juxtaposing the current stock price of $50.97 against the GF Value of $65.6.
Summarize GF Value
The GF Value is a unique metric that calculates the intrinsic value of a stock like Sonic Automotive (SAH, Financial), considering historical trading multiples, an adjustment factor based on past performance, and future business projections. This valuation tool suggests that Sonic Automotive's stock may be undervalued, with a higher potential for future returns given its current price point relative to the GF Value Line. This assessment indicates that Sonic Automotive's stock could be a promising investment opportunity.
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Financial Strength
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. Sonic Automotive's financial strength is fair, with a cash-to-debt ratio ranking lower than many of its industry peers. This metric, combined with an interest coverage examination, provides insight into the company's financial resilience.
Profitability and Growth
Consistent profitability is less risky for investors, and Sonic Automotive has maintained profitability for 9 out of the past 10 years. Despite a recent Loss Per Share, the company's operating margin suggests fair profitability. Additionally, the company's growth metrics, such as the 3-year average annual revenue growth, are promising and compare favorably within the industry.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to Weighted Average Cost of Capital (WACC) is another method to assess profitability. Although Sonic Automotive's ROIC is currently below its WACC, this metric can fluctuate over time and is an important consideration for potential investors.
Conclusion
In conclusion, Sonic Automotive (SAH, Financial) appears modestly undervalued. The company's financial condition and profitability are fair, and its growth is competitive within the Vehicles & Parts industry. For a more in-depth look at Sonic Automotive's financials, interested parties can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
