2024-02-11 09:44:02 ET
Summary
- Sonic Automotive's revenue has been growing, but its profitability and cash flows have declined.
- The company's EchoPark segment, focused on used vehicle sales, has been a major source of losses.
- Despite the challenges, Sonic Automotive's stock is attractively priced and management is working to improve profitability.
Generally speaking, experiencing revenue growth is a positive thing for companies. However, it doesn't always mean that bottom line improvement will follow. And at the end of the day, it's the profits and cash flows of an enterprise that determine its value, not the amount of sales it brings in. A good example of a divergence between growth and profitability can be seen by looking at automotive retail firm Sonic Automotive ( SAH ). Back in October of 2022, I wrote a bullish article about the company because of how cheap the stock was. Some of the firm's financial results were less than ideal. But that was acceptable given how affordable units were at the time. After rating the company a 'buy', the stock went on to achieve upside for shareholders of 25.9%. For a little over a year, that is a fantastic amount of appreciation. Having said that, the upside did fall short of the 35% seen by the S&P 500 over the same window of time....
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Sonic Automotive: Despite Issues, Shares Still Offer Upside