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Wall Street is starting to wake up and realize that the auto-retailers have counter-cyclical business lines that do well in an economic slowdown and that they have very strong cash flows (how many companies can you say that about?). Not only that, but the question now is how should they be valued relative to other retailers?

Currently they trade at a large discount to most retailers and the S&P500.

It is also important to distiguish between the companies in the sector because there are differences regionally and with respect to their balance sheets. The group has already had exceptional movement year-to-date:
Lithia Motors (LAD) 12.9x +30% +31% 5.0x
Group 1 Auto (GPI) 13.1x +180% +120% 5.9x
Sonic Auto (SAH) 11.2x +152% +73% 6.2x
United Auto (UAG) 13.5x +134% +70% 7.4x
AutoNation (AN) 14.3x +102% +62% 7.5x

As you can see Autonation has the highest P/E of the group. Are they overvalued or are the others undervalued? I tend to think the others are undervalued and that Autonation is getting a premium because it is the 600 lb gorilla.

If you take the balance sheet into consideration, you should look at the EV/EBITDA multiple. A lower number can signal a healthier balance sheet relative to the income statement (and other factors). The point is that once again Autonation has the highest multiple. Are they trading at a premium or are the others undervalued?

Relative to many other "retailers" they are all undervalued!

You may want to take a look at some of the other auto-retailers to take advantage of a "valuation" play.

By the way, the recent moves are due to the fact that UAG recently announced that Q2 earnings would exceed analyst estimates by at least 5 cents (nothing noted on CNBC of course!). This may be true for the others in the sector, only a little more time will tell - currently there have been no announcements to the contrary.

Also, keep in mind that this sector is very much under-followed as noted above. It will not always be that way.
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