• If you are wondering whether Asbury Automotive Group's current share price lines up with its underlying worth, this article walks through what the numbers are actually saying about value.
• After reaching a recent close of US$218.33, the stock has seen a 2.2% decline over the last 7 days, a 9.5% decline over 30 days, a 7.0% decline year to date, and an 18.2% decline over the past year. The 5 year return sits at 30.0% and the 3 year return at a 6.2% decline.
• These moves have come as investors continue to reassess auto retail names in general, with sentiment shifting between concerns about the broader auto cycle and interest in operators with established dealership networks. That push and pull helps explain why some shareholders may now be rechecking what they are actually paying relative to the business fundamentals.
• On our checks, Asbury Automotive Group currently scores a 5 out of 6 valuation score. This suggests a lot of the upcoming discussion will focus on why different methods might point to undervaluation in most areas. We will also finish by looking at an even richer way to think about value beyond the usual ratios and models.

Approach 1: Asbury Automotive Group Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business could be worth by projecting future cash flows and then discounting them back to today, using a required rate of return. It is essentially asking what all those future dollars are worth in present terms.

For Asbury Automotive Group, the model uses a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month free cash flow stands at about US$598.5 million. Analysts provide explicit free cash flow estimates out to 2027, with Simply Wall St extrapolating further to build a ten year path. On those projections, free cash flow in 2035 is modeled at roughly US$1,347.1 million.

Discounting those projected cash flows back to today produces an estimated intrinsic value of about US$569.38 per share. Compared with the recent share price of US$218.33, the model implies an intrinsic discount of roughly 61.7%, which indicates that the shares are trading well below this DCF estimate of value.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Asbury Automotive Group is undervalued by 61.7%. Track this in your watchlist or portfolio, or discover 54 more high quality undervalued stocks.

Approach 2: Asbury Automotive Group Price vs Earnings

P/E is a useful way to think about value for profitable companies because it ties the share price directly to the earnings that each share is entitled to. In general, higher growth and lower perceived risk can justify a higher P/E, while slower growth and higher risk tend to line up with a lower P/E being seen as normal or fair.

Asbury Automotive Group currently trades on a P/E of 8.55x. That sits well below the Specialty Retail industry average P/E of 20.15x and also below the peer group average of 30.18x. On the surface, that indicates the market is pricing Asbury’s earnings at a lower level than many other retailers.

Simply Wall St’s Fair Ratio for Asbury’s P/E is 14.87x. This is a proprietary estimate of what a reasonable P/E could be for the company, taking into account factors such as earnings growth, profit margins, industry, market capitalization and risk, rather than just comparing it with broad industry or peer averages. Because it incorporates these company specific traits, the Fair Ratio can serve as a more tailored benchmark than a simple comparison with the sector.

With the current P/E of 8.55x sitting below the Fair Ratio of 14.87x, this approach suggests that the shares may be undervalued on an earnings basis.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Asbury Automotive Group Narrative

Earlier we mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you attach a clear story to your numbers by linking your view on Asbury Automotive Group’s future revenue, earnings and margins to a financial forecast. This is then turned into a Fair Value you can compare with the current share price, and it is updated automatically when news or earnings arrive. One investor might build a more cautious Asbury view that lines up with a lower Fair Value such as US$215.00, while another might build a more optimistic view that aligns with a higher Fair Value such as US$335.00. Both can then quickly see whether their personal Fair Value sits above or below today’s price and decide how that fits with their own buy or sell plans, all within the Community page used by millions of investors.

Do you think there's more to the story for Asbury Automotive Group? Head over to our Community to see what others are saying!

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.