What the recent caution around Sonic Automotive means for investors

Recent market commentary has put Sonic Automotive (SAH) back on investors’ radar, as short-term pressure, used car market normalization, and questions around EchoPark’s long-term profitability have made the upcoming quarters feel particularly important.

The recent caution around EchoPark and used car normalization comes against a mixed backdrop, with a 1-day share price return of 2.41% lifting Sonic Automotive to $64.47. However, the 90-day share price return of an 8.81% decline contrasts with a 5-year total shareholder return of 53.17%. This suggests short-term momentum is fading even as longer-term investors have still seen substantial gains.

If you are looking beyond Sonic Automotive in the same space, it could be a useful moment to scan other auto manufacturers that might fit your watchlist next.

With Sonic trading at $64.47 and showing discounts to some valuation estimates, along with mixed recent returns, the key question is simple: is there still underappreciated value here, or is the market already pricing in future growth?

Most Popular Narrative: 17.5% Undervalued

With Sonic Automotive last closing at US$64.47 against a narrative fair value of US$78.10, the valuation gap centers on earnings, margins, and capital allocation.

Ongoing dealership portfolio optimization, including acquisitions of high-performing, luxury-branded stores in growing Sunbelt markets, leverages population migration and urbanization trends. This enables outperformance in markets with above-average demand, supporting higher net margins and revenue growth.

Want to see what underpins that margin story? The narrative leans on steady top line gains, fatter net margins, and a future earnings multiple that still steps down from today. Curious how those pieces add up to that fair value and what assumptions sit behind the earnings bridge and discount rate? The full narrative lays out every moving part.

Result: Fair Value of $78.10 (UNDERVALUED)

However, there are still pressure points to watch, including the risk that EV adoption trims higher margin service revenue, and that direct to consumer models chip away at traditional dealership economics.

Build Your Own Sonic Automotive Narrative

If this narrative does not quite fit how you see Sonic, you can stress test the same data and shape your own view in 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.

Looking for more investment ideas?

If Sonic is only one piece of your watchlist, this is the moment to widen the net and line up a few fresh contenders before the next move.

• Spot potential bargains early by scanning these 876 undervalued stocks based on cash flows that may offer more value for every dollar you put to work.
• Ride powerful tech trends by checking out these 28 AI penny stocks with exposure to artificial intelligence and related growth themes.
• Target dependable income streams by reviewing these 11 dividend stocks with yields > 3% that already offer yields above 3%.

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.