Yahoo Finance Is Now The Time To Look At Buying AutoNation, Inc. (NYSE:AN)?
AutoNation, Inc. (NYSE:AN), is not the largest company out there, but it saw significant share price movement during recent months on the NYSE, rising to highs of US$132 and falling to the lows of US$105. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether AutoNation's current trading price of US$110 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at AutoNation’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for AutoNation
Is AutoNation Still Cheap?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that AutoNation’s ratio of 4.12x is trading slightly below its industry peers’ ratio of 6.61x, which means if you buy AutoNation today, you’d be paying a decent price for it. And if you believe that AutoNation should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. So, is there another chance to buy low in the future? Given that AutoNation’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of AutoNation look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Though in the case of AutoNation, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What This Means For You
Are you a shareholder? AN seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on AN, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on AN for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on AN should the price fluctuate below the industry PE ratio.
So while earnings quality is important, it's equally important to consider the risks facing AutoNation at this point in time. Case in point: We've spotted 3 warning signs for AutoNation you should be mindful of and 1 of them makes us a bit uncomfortable.
If you are no longer interested in AutoNation, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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