Sonic Automotive (SAH) Valuation Spotlight After Mixed Q3: Revenue Surges, Profits Disappoint

Sonic Automotive (SAH) just reported its third quarter results, highlighting a solid jump in revenue compared to last year. However, net income and earnings per share moved lower. This earnings update is drawing renewed focus from investors.

See our latest analysis for Sonic Automotive.

Sonic Automotive's share price has pulled back sharply in the past month, down 19.4%, as investors digested the company's latest earnings update showing softer profits despite rising revenue. Still, when you look at the broader picture, long-term total shareholder returns remain robust, with a gain of 7.2% over the past year and more than 60% over five years. Momentum may be volatile near-term, but those with a longer lens have seen solid value built over time.

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With shares now trading well below recent highs and analysts projecting a price target notably above the current level, investors are left wondering whether Sonic Automotive is undervalued today or if the market has already factored in its future growth.

Most Popular Narrative: 25.4% Undervalued

Sonic Automotive is trading notably below the fair value set by the most-followed narrative, which presents a compelling valuation picture compared to the current share price.

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. This provides resilient, recurring high-margin revenue streams.

Read the complete narrative.

Curious how Sonic Automotive’s valuation is built? There is a bold underpinning in the story: strong growth assumptions and margin expansion could shift industry expectations. Want to see what surprising financial forecasts drive this target price? Dive in to discover what is behind the headline valuation.

Result: Fair Value of $82.33 (UNDERVALUED)

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

However, persistent growth in electric vehicles and the rise of direct-to-consumer car sales could challenge Sonic Automotive’s current high-margin service and dealership models.

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

Another View: A Closer Look at Price Ratios

While the fair value estimate paints Sonic Automotive as undervalued, a look at its price-to-earnings ratio tells a different story. The company trades at 16.1 times earnings, which is higher than the peer average of 11.8x; however, it is still just below the US Specialty Retail industry average of 16.6x. Compared to the fair ratio of 19.2x, there appears to be limited upside unless market sentiment shifts. Is the market missing something, or are risks keeping a lid on the stock?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Sonic Automotive Narrative

If you see the numbers differently or want to form your own perspective, you can easily dig into the details and build your own view in just a few 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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