Should You Be Concerned About Sonic Automotive Inc’s (NYSE:SAH) Earnings Growth?
For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Sonic Automotive Inc (NYSE:SAH) useful as an attempt to give more color around how Sonic Automotive is currently performing.
Check out our latest analysis for Sonic Automotive
Could SAH beat the long-term trend and outperform its industry?
SAH’s trailing twelve-month earnings (from 30 June 2018) of US$96.9m has jumped 39.9% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -1.0%, indicating the rate at which SAH is growing has accelerated. What’s the driver of this growth? Let’s see if it is solely because of industry tailwinds, or if Sonic Automotive has experienced some company-specific growth.
Over the past couple of years, Sonic Automotive top-line expansion has overtaken earnings and the growth rate of expenses. Though this has caused a margin contraction, it has moderated Sonic Automotive’s earnings contraction.
Inspecting growth from a sector-level, the US specialty retail industry has been growing, albeit, at a muted single-digit rate of 8.7% over the past twelve months, and 7.5% over the last five years. This growth is a median of profitable companies of 25 Specialty Retail companies in US including DSW, Francesca’s Holdings and Sports Direct International. This shows that whatever uplift the industry is benefiting from, Sonic Automotive is able to amplify this to its advantage.
In terms of returns from investment, Sonic Automotive has fallen short of achieving a 20% return on equity (ROE), recording 12.3% instead. Furthermore, its return on assets (ROA) of 5.2% is below the US Specialty Retail industry of 7.3%, indicating Sonic Automotive’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Sonic Automotive’s debt level, has declined over the past 3 years from 10.3% to 9.1%.
What does this mean?
Though Sonic Automotive’s past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Sonic Automotive to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SAH’s future growth? Take a look at our free research report of analyst consensus for SAH’s outlook.
Financial Health: Are SAH’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
