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Should Value Investors Buy Sonic Automotive (SAH) Stock?

Zacks Equity Research

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

On top of the Zacks Rank, investors can also look at our innovative Style Scores system to find stocks with specific traits. For example, value investors will want to focus on the "Value" category. Stocks with high Zacks Ranks and "A" grades for Value will be some of the highest-quality 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), as well as an A grade for Value.

Another valuation metric that we should highlight is SAH's P/B ratio of 1.41. The P/B ratio is used to compare a stock's market value with 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 1.60. Over the past year, 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. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. SAH has a P/S ratio of 0.12. This compares to its industry's average P/S of 0.23.

Finally, we should also recognize that SAH has a P/CF ratio of 6.21. 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 current P/CF looks attractive when compared to its industry's average P/CF of 7.25. Over the past year, SAH's P/CF has been as high as 6.99 and as low as 3, with a median of 4.36.

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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