SAH

We rate SONIC AUTOMOTIVE INC (SAH) as a Hold with a composite score of 51.2/100 at a current price of $62.88. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in value (82th percentile) and stability (61th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (23th percentile) and momentum (40th percentile) tempers our overall conviction. We assign a Narrow Moat rating (40/100), Medium uncertainty, and Standard capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

SONIC AUTOMOTIVE INC holds a top-quartile position (#0 of 50) within the Retail Trade sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 51.2/100 places it at rank #1833 in our full 7,333-stock universe. At $2.6B in market capitalization, SONIC AUTOMOTIVE INC is a mid-cap player in the Retail Trade space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 15%, though momentum at the 40th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 16% (-20.4pp vs sector) narrow to operating margins of 2% (-1.5pp vs sector) and net margins of 1.0%, yielding a gross-to-net conversion rate of 6%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $62.88, SONIC AUTOMOTIVE INC appears undervalued relative to its fundamentals. Our value factor score of 82/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 15.6x (a 27% discount to the sector median of 21.4x), EV/EBITDA of 7.3x (discounted to peers), P/B of 2.1x, P/S of 0.1x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Medium uncertainty rating to SONIC AUTOMOTIVE INC. The stock presents a balanced risk profile: significant leverage (139% debt-to-equity) and the combination of leverage (139% D/E) and thin margins (1.0% net) amplifies downside risk. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: significant leverage (139% debt-to-equity); the combination of leverage (139% D/E) and thin margins (1.0% net) amplifies downside risk. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 61th percentile and quality factor at the 56th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: above-average stability (61th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate SONIC AUTOMOTIVE INC's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 13.7%, and the balance sheet is managed within acceptable parameters (D/E: 139%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; SONIC AUTOMOTIVE INC falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 1.88% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, SONIC AUTOMOTIVE INC receives a Hold rating with a composite score of 51.2/100 (rank #1833 of 7,333). Our quantitative framework assigns a Narrow Moat (40/100, trend: stable), Medium uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 52/100.

Our analysis supports a neutral stance on SONIC AUTOMOTIVE INC. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.