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Sonic Automotive, Inc. (NYSE:SAH), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the NYSE. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine Sonic Automotive’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Check out our latest analysis for Sonic Automotive
Is Sonic Automotive Still Cheap?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Sonic Automotive’s ratio of 5.44x is trading slightly below its industry peers’ ratio of 6.71x, which means if you buy Sonic Automotive today, you’d be paying a reasonable price for it. And if you believe that Sonic Automotive should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since Sonic Automotive’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will Sonic Automotive generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Though in the case of Sonic Automotive, it is expected to deliver a relatively unexciting earnings growth of 0.7%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for Sonic Automotive, at least in the near term.
What This Means For You
Are you a shareholder? It seems like the market has already priced in SAH’s growth outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at SAH? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?