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Is AutoNation, Inc. (NYSE:AN) Potentially Undervalued?

Simply Wall St

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AutoNation, Inc. (NYSE:AN), which is in the specialty retail business, and is based in United States, saw a double-digit share price rise of over 10% 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 AutoNation’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for AutoNation

What is AutoNation worth?

According to my valuation model, the stock is currently overvalued by about 23.86%, trading at US$41.94 compared to my intrinsic value of $33.86. Not the best news for investors looking to buy! If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since AutoNation’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 AutoNation generate?

NYSE:AN Past and Future Earnings, July 15th 2019

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 AutoNation, it is expected to deliver a negative earnings growth of -3.4%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? If you believe AN 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. Given the uncertainty from negative growth in the future, this could be the right time to de-risk your portfolio. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on AN for some time, now may not be the best time to enter into the stock. Price climbed passed its true value, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on AutoNation. You can find everything you need to know about AutoNation in the latest infographic research report. If you are no longer interested in AutoNation, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.