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Is Sonic Automotive (SAH) Stock Undervalued Right Now?

Zacks Equity Research

The proven Zacks Rank system focuses on earnings estimates and estimate revisions to find winning stocks. Nevertheless, we know that our readers all have their own perspectives, so we are always looking at the latest trends in value, growth, and momentum to find strong picks.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One company value investors might notice is Sonic Automotive (SAH). SAH is currently sporting a Zacks Rank of #1 (Strong Buy) and an A for Value.

We should also highlight that SAH has a P/B ratio of 1.48. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. This stock's P/B looks attractive against its industry's average P/B of 1.69. Over the past 12 months, SAH's P/B has been as high as 1.59 and as low as 0.70, with a median of 0.95.

Value investors also frequently use the P/S ratio. This metric is found by dividing a stock's price with the company's revenue. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. SAH has a P/S ratio of 0.13. This compares to its industry's average P/S of 0.26.

Finally, our model also underscores that SAH has a P/CF ratio of 6.51. This figure highlights a company's operating cash flow and can be used to find firms that are undervalued when considering their impressive cash outlook. SAH's P/CF compares to its industry's average P/CF of 7.66. Over the past year, SAH's P/CF has been as high as 6.99 and as low as 3, with a median of 4.35.

These figures are just a handful of the metrics value investors tend to look at, but they help show that Sonic Automotive is likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, SAH feels like a great value stock at the moment.


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