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Sonic Automotive, Inc. (NYSE:SAH), is not the largest company out there, but it received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$75.24 at one point, and dropping to the lows of US$62.35. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Sonic Automotive's current trading price of US$65.94 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Sonic Automotive’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Sonic Automotive
Is Sonic Automotive Still Cheap?
Sonic Automotive appears to be overvalued by 30% at the moment, based on our discounted cash flow valuation. The stock is currently priced at US$65.94 on the market compared to our intrinsic value of $50.60. This means that the opportunity to buy Sonic Automotive at a good price has disappeared! But, is there another opportunity to buy low in the future? Since Sonic Automotive’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 27% over the next couple of years, the future seems bright for Sonic Automotive. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What This Means For You
Are you a shareholder? It seems like the market has well and truly priced in SAH’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe SAH should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.