Does AutoNation’s 32% Rally Signal More Gains Ahead After Strong Q1 Earnings?

If you’re reading this, chances are you’re trying to figure out whether AutoNation is a buy, a hold, or maybe even a sell. Let’s be honest, it’s not an easy call these days, especially with the sharp moves stocks have been making across the auto sector. AutoNation’s stock closed at $220.99, and while it dipped a mild 0.4% over the past month, you might be surprised to know it has rocketed by 32.4% year-to-date and an impressive 250.6% over the last five years. Those numbers alone are enough to raise any investor’s eyebrows and spark a conversation about what’s really driving performance. Investors may ask whether it can continue.

It’s not just about market momentum or shifting consumer habits, though both have played a part in sending ripples across automotive stocks lately. The bigger question might actually be whether AutoNation’s current price reflects its true worth. Analysts use a whole toolbox of valuation checks, and AutoNation comes out looking like a value play in 4 out of 6 of them. That puts its official value score at 4, which is a strong result but with a little complexity beneath the surface.

So, is AutoNation undervalued, fairly priced, or running ahead of itself? Before you make your next move, let’s take a closer look at how the numbers stack up across different valuation approaches. And just when you think you’ve seen it all, there may be an even sharper way to get to the heart of its true value.

AutoNation delivered 32.7% returns over the last year. See how this stacks up to the rest of the Specialty Retail industry.

Approach 1: AutoNation Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and then discounting those amounts back to today’s dollars. This gives investors a sense of what the business could truly be worth, rather than what it's simply trading for on the market.

For AutoNation, the DCF model uses a two-stage approach based on Free Cash Flow (FCF) to Equity. At last report, AutoNation’s latest twelve months' FCF was a negative $511.6 Million, but analysts expect a significant turnaround over the next several years. FCF projections reach $1.1 Billion by 2029, reflecting healthy growth as operations recover and expand. While analyst estimates cover the next five years, further growth beyond that is extrapolated by Simply Wall St for a full ten-year outlook.

Based on this analysis, the estimated intrinsic fair value for AutoNation shares comes to $346.38, calculated in $. Against the current share price of $220.99, this indicates the stock is trading at a 36.2% discount, which suggests substantial undervaluation by this metric.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for AutoNation.

Our Discounted Cash Flow (DCF) analysis suggests AutoNation is undervalued by 36.2%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: AutoNation Price vs Earnings (PE)

The Price-to-Earnings (PE) ratio is a popular valuation metric for profitable companies like AutoNation because it shows how much investors are willing to pay for each dollar of earnings. For businesses that generate steady profits, the PE offers a straightforward comparison across different stocks and sectors.

What counts as a "normal" or fair PE ratio depends on expectations for growth and risk. Higher-growth, lower-risk companies typically justify higher PE ratios, while companies expected to face challenges may trade at a discount. Context matters, so it is crucial to compare AutoNation’s PE against meaningful benchmarks.

AutoNation is currently trading at a PE ratio of 13.1x. This sits above the average for similar peers, which is 12.1x, but below the Specialty Retail industry average of 16.6x. However, Simply Wall St has developed a "Fair Ratio," which is a proprietary benchmark that adjusts for factors like earnings growth, profitability, industry dynamics, company size, and risk profile. For AutoNation, the Fair Ratio is 16.0x.

Unlike standard comparisons to peers or industry averages, the Fair Ratio offers a more tailored estimate of what is reasonable for AutoNation specifically. It reflects unique growth prospects, margins, and market positioning, providing a deeper level of insight for investors.

Comparing AutoNation’s actual PE of 13.1x to its Fair Ratio of 16.0x suggests the stock is undervalued using this approach.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your AutoNation Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply your story, the set of beliefs, expectations, and forecasts you attach to a company that translates into how you value it. Instead of viewing numbers in isolation, Narratives allow you to connect your perspective about AutoNation’s future (like how fast you think revenues or margins will grow) to a specific fair value, and then compare that fair value to today’s price.

On Simply Wall St’s Community page, millions of investors use Narratives as an easy and accessible tool to frame their investment decisions. They make it clear whether your story supports buying, holding, or waiting by comparing your assumed fair value against the current share price. What makes Narratives especially powerful is how they dynamically update when new information arrives, such as earnings results or major news events, so your view can always reflect the latest developments.

For AutoNation, one investor might see digital transformation and after-sales growth as reasons to set a bullish price target of $255.00, while another, more cautious about EV risks and heightened competition, may land closer to $200.00. This demonstrates how different stories shape different estimates of fair value.

Do you think there's more to the story for AutoNation? Create your own Narrative to let the Community know!

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.

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