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Here's Why Sonic Automotive (NYSE:SAH) Has Caught The Eye Of Investors

Simply Wall St ·  {{timeTz}}

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Sonic Automotive (NYSE:SAH). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

Check out our latest analysis for Sonic Automotive

How Quickly Is Sonic Automotive Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. To the delight of shareholders, Sonic Automotive has achieved impressive annual EPS growth of 56%, compound, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Our analysis has highlighted that Sonic Automotive's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Sonic Automotive maintained stable EBIT margins over the last year, all while growing revenue 18% to US$13b. That's encouraging news for the company!

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

earnings-and-revenue-historyNYSE:SAH Earnings and Revenue History September 23rd 2022

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Sonic Automotive's future EPS 100% free.

Are Sonic Automotive Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

We did see some selling in the last twelve months, but that's insignificant compared to the whopping US$5.5m that the company insider, Paul Rusnak spent acquiring shares. The average price paid was about US$41.87. It's not often you see purchases like this and so it should be on the radar of everyone who follows Sonic Automotive.

Along with the insider buying, another encouraging sign for Sonic Automotive is that insiders, as a group, have a considerable shareholding. Notably, they have an enviable stake in the company, worth US$354m. That equates to 20% of the company, making insiders powerful and aligned with other shareholders. Looking very optimistic for investors.

Should You Add Sonic Automotive To Your Watchlist?

Sonic Automotive's earnings per share have been soaring, with growth rates sky high. To sweeten the deal, insiders have significant skin in the game with one even acquiring more. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Sonic Automotive belongs near the top of your watchlist. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Sonic Automotive (1 is significant) you should be aware of.

The good news is that Sonic Automotive is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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