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Should Value Investors Buy Sonic Automotive (SAH) Stock?

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.

Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors use tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued at their current share price levels.

Luckily, Zacks has developed its own Style Scores system in an effort to find stocks with specific traits. Value investors will be interested in the system's "Value" category. Stocks with both "A" grades in the Value category and high Zacks Ranks are among the strongest value stocks on the market right now.

One company to watch right now 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 1.57. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. This stock's P/B looks solid versus its industry's average P/B of 1.66. SAH's P/B has been as high as 1.63 and as low as 0.70, with a median of 0.95, over the past year.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. 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 0.14. This compares to its industry's average P/S of 0.27.

Finally, investors should note that SAH has a P/CF ratio of 6.83. 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. This company's current P/CF looks solid when compared to its industry's average P/CF of 8.52. Within the past 12 months, SAH's P/CF has been as high as 7.08 and as low as 3, with a median of 4.54.

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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