Sonic Automotive Inc (SAH, Financial) made a significant daily gain of 13.45%, despite its 3-month loss of -2.97%. With a Loss Per Share of 1.05, the question arises: Is the stock modestly undervalued? The ensuing analysis aims to answer this, delving into the company's financials, market performance, and intrinsic value as indicated by the GF Value.
Company Overview
Sonic Automotive Inc (SAH, Financial), one of the largest auto dealership groups in the United States, operates 108 franchised stores and 18 EchoPark used-vehicle stores across 18 states. The company's revenue sources include new and used vehicles, parts and collision repair, finance, insurance, and wholesale auctions. As of 2022, Sonic Automotive generated revenue of $14 billion, with EchoPark contributing $2.5 billion following the acquisition of RFJ Auto in December 2021, which added $3.2 billion in sales.
With a current stock price of $49.16 and a market cap of $1.70 billion, Sonic Automotive's intrinsic value, as indicated by the GF Value, stands at $67.59. This suggests that the stock may be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's fair value, based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line represents the ideal fair trading value of the stock. If the stock price significantly deviates from the GF Value Line, it indicates overvaluation or undervaluation, which can impact future returns.
For Sonic Automotive (SAH, Financial), the current stock price of $49.16 per share and the market cap of $1.70 billion indicate modest undervaluation. This suggests that the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Assessing the financial strength of a company is crucial before investing in its stock. Sonic Automotive's cash-to-debt ratio of 0.03, which ranks lower than 94.24% of 1232 companies in the Vehicles & Parts industry, indicates fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Sonic Automotive, with high profitability and a revenue of $14.20 billion over the past twelve months, has been profitable 9 out of the past 10 years. However, its operating margin of 4.04% ranks worse than 55.01% of 1267 companies in the Vehicles & Parts industry.
Company growth is a critical factor in valuation. Sonic Automotive's 3-year average annual revenue growth rate of 13.8% ranks better than 72.64% of 1206 companies in the Vehicles & Parts industry. However, its 3-year average EBITDA growth rate of 6.8% ranks worse than 50.23% of 1081 companies in the same industry.
ROIC vs WACC
A company's profitability can also be evaluated by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Sonic Automotive's ROIC of -14.21 in the past 12 months is significantly lower than its WACC of 2.91, indicating potential challenges in generating cash flow relative to the capital invested in its business.
Conclusion
In conclusion, Sonic Automotive (SAH, Financial) appears to be modestly undervalued. Despite its fair financial condition and strong profitability, its growth ranks worse than 50.23% of 1081 companies in the Vehicles & Parts industry. For more insights into Sonic Automotive's stock, check out 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.
