At US$023.35, Is Sonic Automotive Inc (NYSE:SAH) A Buy?
Sonic Automotive Inc (NYSE:SAH), a specialty retail company based in United States, saw a significant share price rise of over 20% in the past couple of months on the NYSE. As a 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 Sonic Automotive’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. See our latest analysis for Sonic Automotive
Is Sonic Automotive still cheap?
Good news, investors! Sonic Automotive is still a bargain right now. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Sonic Automotive’s ratio of 11.03x is below its peer average of 20.73x, which suggests the stock is undervalued compared to the Specialty Retail industry. However, given that Sonic Automotive’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Sonic Automotive generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Though in the case of Sonic Automotive, it is expected to deliver a negative earnings growth of -2.97%, 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? Although SAH is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to SAH, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping an eye on SAH for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Sonic Automotive. You can find everything you need to know about Sonic Automotive in the latest infographic research report. If you are no longer interested in Sonic Automotive, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see pass 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.
