Sonic Automotive (SAH): Assessing Valuation After Legal Probe and Sharp Net Income Drop

Sonic Automotive (SAH) has come under fresh scrutiny after law firm Levi & Korsinsky launched an investigation into potential federal securities law violations. This follows a 33% drop in third quarter net income, partly due to higher medical costs and taxes.

See our latest analysis for Sonic Automotive.

Sonic Automotive’s share price felt the impact of October’s legal probe and earnings drop, tumbling more than 15% in a single day, and the losses have lingered with a 30-day share price return of -13.57%. While year-to-date movement is nearly flat, the stock’s three-year total shareholder return of 30.5% and five-year total return of 61.8% highlight the longer-term gains for those who stuck with it. However, recent momentum is under pressure as the market reassesses risk.

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With shares trading about 26% below the latest analyst price target and a third of their estimated intrinsic value, investors now face a dilemma: Is this discount a rare buying opportunity, or has the market already priced in Sonic Automotive’s prospects?

Most Popular Narrative: 20.5% Undervalued

Sonic Automotive’s widely followed narrative sets a fair value significantly above the current share price, implying a major disconnect between market sentiment and what analysts project. The numbers behind that estimate rest on a decidedly optimistic roadmap for earnings growth, profit margins, and operational transformation.

Strategic focus on growing fixed operations (service, parts, and warranty), which now make up approximately 75% of total gross profit and continue to see double-digit growth, addresses secular tailwinds from an aging vehicle base and a rising U.S. vehicle fleet, providing resilient, recurring high-margin revenue streams.

Read the complete narrative.

Curious which bold assumptions power this valuation? The narrative’s future hinges on higher margins and lasting growth well beyond the latest headlines. Think the story ends with car sales? Think again. What’s under the hood might surprise you.

Result: Fair Value of $78.10 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, rising electric vehicle adoption and shifts toward direct-to-consumer sales could challenge Sonic Automotive’s long-term profit margins and traditional dealership model.

Find out about the key risks to this Sonic Automotive narrative.

Build Your Own Sonic Automotive Narrative

If the existing storyline doesn’t fit your view or you’d rather draw your own conclusions from the numbers, you can put together your own perspective in just a couple of minutes. Do it your way

A great starting point for your Sonic Automotive research is our analysis highlighting 4 key rewards and 3 important warning signs that could impact your investment decision.

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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.

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