AutoNation (AN) Margin Decline Reinforces Bearish Narratives Despite Discounted Valuation

AutoNation (AN) delivered a 3% annual decline in earnings over the past five years, with net profit margins slipping to 2.3% from 2.9% last year and reporting negative earnings growth in the most recent period. While forward-looking forecasts point to 7.29% annual earnings growth, this rate trails the US market’s broader earnings growth of 15.5% per year and revenue growth expectations of 10% per year. Margin compression and a pattern of steady but subdued growth are affecting sentiment around the results, despite below-fair-value share pricing and a price-to-earnings ratio of 12.4x compared to the industry’s 16.7x average.

See our full analysis for AutoNation.

The next section examines how these headline numbers compare to the most widely followed narratives about AutoNation, revealing where expectations align or diverge.

See what the community is saying about AutoNation

After-Sales Delivers Record Revenue, Margins Hold Steady

• After-sales operations, including service, parts, and collision work, drove record revenue and higher gross margins. This segment stands out as a key source of stable, high-margin income supporting overall company earnings.
• Analysts' consensus view highlights that this growth is anchored in long-term trends, such as a rising average vehicle age and the expanding U.S. car parc. These factors are expected to underpin recurring, resilient revenue and earnings stability.
  • The company’s ongoing expansion of stand-alone used vehicle stores and continued densification in key markets builds on the broader industry trend of new vehicle under-supply since the pandemic.
  • Strategic investments in digital transformation, including improved data analytics and omnichannel sales, are credited with driving higher efficiency and broadening the customer base, in line with shifting preferences for online research and purchasing.
• The consensus narrative notes that these factors position AutoNation to leverage secular trends in U.S. auto retail and strengthen earnings despite a slower forecasted growth rate versus the wider market. 📊 Read the full AutoNation Consensus Narrative.

Profit Margin Resilience Amid Shifting Industry Landscape

• Analysts project that net profit margins will rise from 2.3% today to 2.9% over the next three years, suggesting a rebound in profitability even as growth lags behind broader market trends.
• According to the consensus narrative, this margin resilience is set against a backdrop of growing risks:
  • Competitive pressures from direct-to-consumer and digital-first models like Carvana and Tesla could compress margins, as industry dynamics shift away from traditional dealerships.
  • The rise of electric vehicles threatens the long-term strength of high-margin aftersales services. Nearly half of AutoNation’s gross profit comes from these services, and EVs typically require less maintenance.

Valuation Below Fair Value but Growth Trails Sector

• AutoNation’s price-to-earnings ratio sits at 12.4x, lower than the US Specialty Retail industry average of 16.7x but higher than the peer group’s 11.9x. This makes it look attractively valued, especially compared to its DCF fair value of $347.55, which is above the current share price of $208.67.
• The consensus narrative underscores that while analysts estimate a modest 2.9% annual revenue growth over the next three years, the small 1.4% gap between the latest share price and the analyst target of $227.50 suggests the market already sees AutoNation as fairly valued, with little immediate upside unless profit and margin forecasts are exceeded.
  • The narrative also points out a decline in shares outstanding by 4.89% per year, which could provide some support to earnings per share but isn’t expected to transform the overall growth outlook.
  • Despite a valuation gap to both DCF fair value and the wider industry, margin compression and slower growth are likely capping investor enthusiasm.

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for AutoNation on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

Do the numbers tell you a different story? In just a few minutes, you can shape your own perspective and share your narrative: Do it your way.

A great starting point for your AutoNation research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

See What Else Is Out There

AutoNation’s sluggish earnings growth and ongoing margin compression reflect challenges in sustaining consistent, above-market performance in a shifting retail landscape.

If you want to focus on companies showing reliable revenue and profits across cycles, check out stable growth stocks screener (2090 results) to see who’s consistently delivering steady results.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com