• If you are wondering whether Penske Automotive Group at around US$157.53 is offering fair value or a potential mispricing, this article will walk you through the key pieces you need to weigh that up.
• The share price has been relatively steady in the near term, with a 1.7% decline over the last week and a 0.4% decline over both the past month and year, while the 3 year and 5 year returns sit at 23.9% and 164.7%.
• Recent coverage around Penske has focused on its position in the US auto retail sector and its exposure to both new and used vehicle demand. This helps frame how investors think about the stock. Broader commentary has also highlighted how listed auto dealers in general are being reassessed by the market as conditions in vehicle supply chains and consumer demand evolve.
• On Simply Wall St's valuation checks, Penske Automotive Group scores 4 out of 6, as shown in its valuation score. Next we will look at how different valuation methods line up on the stock before finishing with a more holistic way to think about its value.

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

A Discounted Cash Flow, or DCF, model estimates what a company could be worth by projecting its future cash flows and discounting them back to today’s value. It is essentially asking what those future cash payments are worth in today’s dollars.

For Penske Automotive Group, the model used is a 2 Stage Free Cash Flow to Equity approach, working off last twelve month free cash flow of about $709 million. Simply Wall St uses analyst inputs where available and then extends those with its own projections. This provides a ten year path of cash flows that are all brought back to a present value using a required return.

On this basis, the DCF output suggests an estimated intrinsic value of about $176.31 per share. Against a recent share price around $157.53, this implies the stock is roughly 10.7% below that estimate, which points to Penske Automotive Group trading at a discount according to this single model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Penske Automotive Group is undervalued by 10.7%. Track this in your watchlist or portfolio, or discover 875 more undervalued stocks based on cash flows.

Approach 2: Penske Automotive Group Price vs Earnings

For a profitable company like Penske Automotive Group, the P/E ratio is a useful way to relate what you pay for the stock to the earnings it is currently generating. Investors usually expect higher P/E ratios when they see stronger growth potential or lower perceived risk, and lower P/E ratios when growth expectations are more modest or risks are higher.

Penske Automotive Group currently trades on a P/E of 10.99x. That sits below the Specialty Retail industry average P/E of 20.37x and below the peer group average of 12.75x, so the market is currently applying a lower earnings multiple than these broad comparables.

Simply Wall St also calculates a Fair Ratio for Penske Automotive Group of 14.32x. This is its proprietary view of what a reasonable P/E might be, given factors such as the company’s earnings growth profile, profit margins, industry, market capitalization and specific risks. Because it looks at the company’s own fundamentals rather than just broad group averages, it can be a more tailored yardstick than simple industry or peer comparisons.

Comparing the Fair Ratio of 14.32x to the current P/E of 10.99x suggests the shares are trading below that Fair Ratio estimate.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1424 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Penske Automotive Group Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. These are simply your story about a company, linked directly to the numbers you think are reasonable for its fair value, future revenue, earnings and margins.

A Narrative takes your view of Penske Automotive Group, turns that into a clear forecast, then connects it to a fair value estimate so you can compare that to the current share price and decide whether the gap is attractive or not for your own goals.

On Simply Wall St, Narratives sit inside the Community page. Millions of investors use them as an easy tool to set their assumptions, see the implied fair value in real time and watch that view update automatically when new earnings or news flow in.

For example, one Penske Automotive Group Narrative might assume a relatively cautious revenue and margin path and reach a lower fair value than another Narrative that assumes stronger revenue growth and more resilient margins. This shows how different but reasonable perspectives can lead to very different conclusions about what the shares are worth today.

Do you think there's more to the story for Penske 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.