How Do Lithia Motors’ Recent Dealership Acquisitions Impact Its 2025 Valuation?

Trying to figure out what to do with Lithia Motors stock right now? You’re not alone. After all, the company’s share price has been on a bit of a rollercoaster lately, and any investor wants to know if there’s real opportunity here or just more turbulence ahead. Taking a glance at the price chart, we see a climb of 7.2% in just the last week and 4.0% over the last month, even though the year-to-date performance remains down at -4.9%. There is also the longer-term context: Lithia has given investors a remarkable 71.1% return over three years, despite a slight dip of -1.6% in the past year and a still-solid 42.9% over five years.

So, what is behind these shifts? Recent headlines have turned the spotlight on Lithia’s expansion strategy, particularly several new dealership acquisitions and hints at growing interest in the electric vehicle space. Investors seem to be warming back up to the company’s ambitious growth plans after some early-year skepticism, possibly factoring in new market opportunities or evolving consumer trends.

But price moves are only one side of the story. How does Lithia actually stack up when it comes to valuation? Using a six-factor undervaluation test, Lithia scores a 3, meaning it is considered undervalued in three out of the six main criteria we track. In the next section, we will roll up our sleeves and break down what drives that score across different valuation approaches. And if you are looking for the best way to make sense of a stock’s value, stay tuned until the end because there is an even smarter angle we will share.

Why Lithia Motors is lagging behind its peers

Approach 1: Lithia Motors Dividend Discount Model (DDM) Analysis

The Dividend Discount Model (DDM) values a company by projecting its future dividend payments and then discounting them back to today’s value. This helps estimate what the stock should be worth based on its potential for regular, ongoing dividend payouts.

For Lithia Motors, the model uses the company’s current dividend per share of $2.35, a return on equity (ROE) of 15.91%, and a payout ratio of 5.89%. The expected dividend growth rate has been capped at 3.08%, reflecting a cautious outlook despite a much higher historical average. These assumptions suggest modest, steady increases in dividends moving forward and balance growth potential against sustainability.

Based on these projections, the DDM estimates an intrinsic value for Lithia Motors shares at $39.65. However, when compared to the current market price, this valuation implies the stock is trading at a 736.4% premium. This suggests it is dramatically overvalued according to this measure.

Result: OVERVALUED

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

Our Dividend Discount Model (DDM) analysis suggests Lithia Motors may be overvalued by 736.4%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Lithia Motors Price vs Earnings

For profitable companies like Lithia Motors, the Price-to-Earnings (PE) ratio is a practical and widely used valuation metric. It gauges how much investors are willing to pay for each dollar of a company’s earnings, making it a straightforward way to compare valuations across similar businesses.

Growth expectations and risk levels both play crucial roles in what is considered a “normal” or “fair” PE. Companies expected to grow faster, or those seen as having lower risk or steadier profits, tend to command higher PE ratios. Conversely, companies with more uncertainty or slower earnings growth will usually see lower multiples.

Lithia Motors currently trades at a PE ratio of 9.44x, notably below the Specialty Retail industry average of 16.79x and also under the average for its peers at 11.60x. At first glance, this discount might look attractive, but surface-level comparisons can miss unique strengths or potential risks for a particular stock.

This is where Simply Wall St’s “Fair Ratio” comes in. At 16.62x for Lithia Motors, this proprietary metric is tailored for each company by factoring in its earnings growth, profitability, risks, market cap, and its competitive environment. This makes it a more rounded and reasonable benchmark than simply stacking up against broad industry or peer averages, since it better adjusts for company-specific dynamics.

With Lithia Motors’ PE ratio of 9.44x sitting well below its Fair Ratio of 16.62x, the stock appears undervalued using this multiple, suggesting there could be upside if market sentiment catches up to the company’s potential.

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 Lithia Motors Narrative

Earlier, we mentioned there is an even better way to understand valuation, so let's introduce you to Narratives: these are clear, accessible stories behind a company’s numbers that connect your view of Lithia Motors’ business, your estimates for its future revenues and profits, and the fair value you believe is justified.

Instead of just comparing ratios or relying on price targets, Narratives give you a way to spell out what you think will drive the company’s performance. This approach ties together its latest acquisitions, digital growth, or any risks you see, and turns that view into a specific financial forecast, all within Simply Wall St’s Community page used by millions of investors.

With Narratives, you can decide when to buy or sell by seeing how your fair value stacks up next to the actual share price, and your perspective is updated quickly as real-world events, news, or earnings shift the outlook.

For example, if you expect Lithia’s new tech rollouts and buybacks to boost earnings to over $1.1 billion by 2028, your Narrative might support a fair value as high as $500 per share. If you are more cautious, perhaps worried about margin pressure or changing regulations, you could land closer to $310. This demonstrates how your unique story shapes smarter investing decisions.

Do you think there's more to the story for Lithia Motors? 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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