Investors Interested In Sonic Automotive, Inc.'s (NYSE:SAH) Revenues

With a median price-to-sales (or "P/S") ratio of close to 0.4x in the Specialty Retail industry in the United States, you could be forgiven for feeling indifferent about Sonic Automotive, Inc.'s (NYSE:SAH) P/S ratio of 0.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Sonic Automotive

How Has Sonic Automotive Performed Recently?

Sonic Automotive could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sonic Automotive.

Do Revenue Forecasts Match The P/S Ratio?

Sonic Automotive's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 3.2%. Regardless, revenue has managed to lift by a handy 16% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 6.5% per year over the next three years. With the industry predicted to deliver 5.4% growth per annum, the company is positioned for a comparable revenue result.

In light of this, it's understandable that Sonic Automotive's P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've seen that Sonic Automotive maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Sonic Automotive (at least 1 which makes us a bit uncomfortable), and understanding these should be part of your investment process.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.