Updated on October 28, 2025, this report provides an in-depth evaluation of Sonic Automotive, Inc. (SAH) across five key areas, including its Business & Moat, Financial Statements, and Future Growth. We rigorously benchmark SAH against industry leaders such as AutoNation, Inc. (AN), Penske Automotive Group, Inc. (PAG), and Lithia Motors, Inc. (LAD), interpreting all findings through the value investing lens of Warren Buffett and Charlie Munger.
Mixed outlook.
Sonic Automotive's business is split between stable luxury dealerships and its high-risk EchoPark used-car chain.
While revenue is growing, the company carries a very heavy debt load of over $4.1 billion.
Profitability has been inconsistent, and recent free cash flow has been negative, signaling financial strain.
The EchoPark strategy faces intense competition from larger, more established rivals.
Despite these risks, the stock appears undervalued based on strong cash generation and expected earnings growth.
This makes SAH a high-risk investment whose success hinges on its unproven EchoPark expansion.
US: NYSE
Sonic Automotive, Inc. (SAH) is a prominent automotive retailer in the United States, operating through two distinct business segments. The primary and most established segment consists of traditional franchised dealerships, which sell new and used vehicles under agreements with various automotive manufacturers. This segment generates revenue not just from vehicle sales but also from highly profitable ancillary streams, including Finance and Insurance (F&I) products, and 'fixed operations,' which encompass parts, service, and collision repair. The company's franchised portfolio is deliberately skewed towards luxury and premium import brands, such as BMW, Mercedes-Benz, Lexus, and Honda. The second, newer segment is EchoPark, a chain of used-vehicle superstores designed to compete with national players like CarMax and Carvana. EchoPark focuses on selling nearly-new vehicles (1-4 years old) at fixed, no-haggle prices, aiming for a high-volume, low-cost operational model. A smaller, third segment involves powersports dealerships. Overall, Sonic's strategy is to leverage the stable cash flows from its mature franchised business to fund the expansion and development of the EchoPark brand, which represents its primary vector for future growth.
The franchised dealership segment is the bedrock of Sonic's business, accounting for approximately $11.94 billion, or about 84% of total revenue. This division sells new vehicles from a wide range of manufacturers, with a heavy concentration in the luxury category, which dictates its target market and margin profile. In addition to new car sales, these dealerships are also a major channel for used vehicle sales, primarily through customer trade-ins. The US franchised dealership market is a mature, multi-trillion dollar industry characterized by high fragmentation and intense competition, though exclusive franchise agreements create high barriers to entry in specific territories. Profit margins on new vehicles are notoriously thin, often in the low single digits, making the high-margin F&I and fixed operations business critically important for overall profitability. Sonic competes with other large public dealer groups like AutoNation, Penske Automotive Group, and Lithia Motors, as well as thousands of smaller private dealerships. Its key differentiator is its premium brand mix, which results in higher average transaction prices but also exposes the company more acutely to economic downturns that affect affluent consumers. The consumer for this segment is typically a higher-income individual or household seeking a new or certified pre-owned vehicle from a premium brand. Stickiness is generated through the ongoing service relationship, as customers often return to the dealership for maintenance and repairs, particularly while the vehicle is under warranty. The competitive moat here is moderate, stemming directly from the difficult-to-replicate franchise agreements that grant exclusive rights to sell specific brands in a geographic area. This, combined with economies of scale in marketing and back-office operations, gives Sonic an advantage over smaller competitors.
EchoPark represents Sonic's strategic effort to capture a larger share of the vast and fragmented used car market. This segment generated $2.13 billion in revenue, roughly 15% of the company's total, but notably experienced a sharp revenue decline of nearly 13% in the most recent fiscal year. The model is built on acquiring late-model used vehicles, reconditioning them efficiently, and selling them to consumers at fixed prices slightly below market averages, supported by a modern, technology-enabled customer experience. The total addressable market for used cars in the US is immense, with tens of millions of units sold annually, but it is also brutally competitive. EchoPark faces off against the established market leader CarMax, which has perfected the superstore model over decades, and the online disruptor Carvana, alongside the used car operations of every other dealer group. Profitability in this space is a function of sourcing vehicles at a low cost, maintaining a disciplined and efficient reconditioning process, and turning inventory quickly. The consumer is typically a value-conscious buyer who prioritizes price and a hassle-free purchasing process over brand loyalty to a specific retailer. Stickiness is virtually non-existent, as customers will easily switch to a competitor offering a better price or a more desirable vehicle. EchoPark's competitive moat is currently very weak, if not entirely absent. It lacks the scale, brand recognition, and logistical network of its main competitors. The significant revenue decline suggests fundamental challenges in its business model, likely related to difficulties in sourcing desirable inventory affordably or managing reconditioning costs, which has hindered its ability to compete effectively and casts serious doubt on the long-term viability of its strategy.
While not reported as a standalone segment, fixed operations (parts and service) are a crucial component of the franchised business model and a key source of its resilience. This revenue stream, which typically accounts for 10-15% of a dealership's total revenue but can contribute up to 50% of its gross profit, is far less cyclical than vehicle sales. The market for automotive repair and maintenance is consistently large, as the millions of vehicles on the road require regular servicing. Competition is broad, ranging from other dealerships to independent mechanics and national service chains like Jiffy Lube. Sonic's competitive advantage in this area is its status as a factory-authorized service center. For vehicles under warranty, owners are heavily incentivized or required to use the dealership for repairs, creating a captive customer base. Furthermore, dealership technicians possess specialized training and proprietary equipment for the brands they service, creating a quality and expertise advantage for more complex jobs even on out-of-warranty vehicles. This creates significant customer stickiness, especially among owners of complex luxury vehicles who value specialized knowledge. The moat for fixed operations is therefore quite strong, providing a steady stream of high-margin, recurring revenue that helps absorb the dealership's fixed overhead costs and buffers the company against downturns in the vehicle sales cycle.
In conclusion, Sonic Automotive's business model presents a stark contrast between its two core segments. The franchised dealership business is a mature, cash-generating operation with a moderate and defensible moat. This moat is built upon the twin pillars of exclusive, capital-intensive franchise rights for desirable luxury brands and the recurring, high-margin revenue from its fixed operations. These strengths provide a significant degree of stability and resilience, allowing the business to weather economic cycles better than a pure-play vehicle retailer. However, this stability is being used to finance the EchoPark venture, which has so far failed to establish a competitive advantage.
The EchoPark segment's recent performance is a major red flag concerning its business model and competitive positioning. In a market that requires immense scale and flawless execution in sourcing and reconditioning to succeed, EchoPark appears to be struggling on both fronts. Its negative growth and persistent unprofitability indicate that it lacks a moat and is vulnerable to the superior scale and operational efficiency of competitors like CarMax. This strategic gamble puts a significant strain on the overall enterprise. While the franchised business provides a strong foundation, the company's long-term success and the durability of its overall competitive edge are heavily dependent on its ability to turn around the EchoPark segment. Until that happens, the company's moat is compromised, blending the strength of its legacy business with the pronounced weakness of its growth initiative.
From a quick health check, Sonic Automotive's recent performance is a tale of two stories. The company is profitable in its latest quarter, reporting $46.8 million in net income, a recovery from a loss of -$45.6 million in the prior quarter. More importantly, it is generating substantial real cash, with operating cash flow reaching $167.9 million in the last quarter. However, the balance sheet is not safe; it carries a heavy debt load of $4.16 billion against a mere $89.4 million in cash. This creates significant near-term stress, as the company has very little liquidity to absorb unexpected financial shocks, a key risk for investors.
The income statement reveals a business operating on thin margins. While revenue has been robust, hovering near $4 billion quarterly, the operating margin is tight at just 3.09% in the most recent quarter. This is a slight decrease from the annual level of 3.33%. For investors, this means the company has little room for error. Any increase in costs or pressure on vehicle pricing could quickly erase profits. The inconsistency in net income, swinging from a profit to a significant loss in the prior quarter due to restructuring charges, highlights this vulnerability.
A crucial question is whether the company's reported earnings are translating into actual cash, and recently, the answer is yes. In the latest quarter, operating cash flow ($167.9 million) was significantly stronger than net income ($46.8 million). This positive gap was largely driven by effective working capital management, specifically by reducing inventory, which freed up $88.6 million in cash. This demonstrates an ability to convert inventory into cash but also highlights a dependency on working capital swings, which can be unpredictable. While free cash flow has been positive in the last two quarters, it was negative for the full prior year (-$59.1 million), indicating that strong cash generation is not yet a consistent trend.
The balance sheet's resilience is a major concern and can be classified as risky. Liquidity is extremely tight, with current assets of $2.81 billion barely covering current liabilities of $2.76 billion, resulting in a current ratio of just 1.02. Leverage is very high, with a total debt-to-equity ratio of 3.89. This debt level is substantial compared to the company's earnings, with operating income covering interest payments by only about 2.4 times. This low coverage ratio signals that a downturn in business could make it difficult for Sonic to service its debt obligations, posing a direct risk to shareholders.
The company's cash flow engine appears powerful in the short term but has been uneven over a longer period. Operating cash flow has improved over the last two quarters, funding capital expenditures, dividend payments, and debt reduction. In the most recent quarter, free cash flow of $236.8 million was used to pay down a net $104.5 million in debt and distribute $12 million in dividends. This is a healthy use of cash. However, this is a recent development, and the negative free cash flow for the last full fiscal year suggests this cash generation may not be sustainable at these high levels.
Regarding shareholder payouts, Sonic pays a growing dividend, recently increasing its quarterly payment to $0.38 per share. While this dividend was comfortably covered by free cash flow in the last two quarters, it was not covered over the full 2024 fiscal year, when FCF was negative. This means the company relied on other sources, like debt, to fund its dividend, which is not a sustainable practice. The share count has remained relatively stable, so dilution is not a major concern at present. The company's capital allocation strategy appears aggressive, balancing acquisitions and shareholder returns while carrying a highly leveraged balance sheet, a strategy that amplifies risk.
In summary, Sonic's key strengths are its ability to generate strong revenue (nearly $4 billion in the latest quarter) and, more recently, convert that into significant free cash flow ($236.8 million). However, these are overshadowed by critical red flags. The primary risk is the extremely high leverage ($4.16 billion in total debt) combined with very weak liquidity (current ratio of 1.02), creating a fragile financial structure. The inconsistent profitability and negative annual free cash flow in the recent past add to these concerns. Overall, the financial foundation looks risky because the weak balance sheet offers little protection against operational headwinds or a cyclical downturn in the auto market.
Over the past five years, Sonic Automotive has pursued an aggressive growth strategy, but a closer look at the timeline reveals a loss of momentum and deteriorating financial health. The five-year average annual revenue growth from FY2020 to FY2024 was approximately 7%, driven by a massive 27% surge in FY2021. However, this momentum has cooled significantly; the average growth over the last three years (FY2022-FY2024) was lower at around 4.9%, and revenue actually declined by -1.03% in the latest fiscal year. This slowdown is concerning because it occurred while the company's debt continued to climb.
A similar story unfolds with profitability and cash flow. While earnings per share (EPS) recovered to $6.33 in FY2024 from a volatile period, the underlying free cash flow (FCF) tells a more troubling tale. The company generated strong FCF from FY2020 to FY2022, but this reversed sharply to negative -$219.3 million in FY2023 and negative -$59.1 million in FY2024. This shift from cash generation to cash burn, alongside slowing revenue, indicates that the quality of its recent earnings is low and that its operational performance has weakened considerably.
Looking at the income statement, Sonic's performance has been inconsistent. Revenue grew from $9.8 billion in FY2020 to a peak of $14.4 billion in FY2023 before dipping slightly to $14.2 billion in FY2024. This shows the cyclical nature of the auto retail industry and a recent stall in the company's expansion. More importantly, profitability metrics have declined from their post-pandemic peaks. Operating margin, a key measure of core business profitability, reached a high of 4.53% in FY2022 but has since fallen to 3.33% in FY2024. This margin compression suggests the company is facing challenges with pricing power or cost control in a more competitive market, which is a significant weakness compared to peers who might maintain more stable margins.
The balance sheet reveals a significant increase in financial risk over the past five years. Total debt has ballooned from $2.45 billion in FY2020 to $4.13 billion in FY2024, a nearly 70% increase. This has pushed the company's leverage, measured by the debt-to-equity ratio, from 3.01 to 3.89 over the same period. While the company has grown its asset base, this growth was clearly debt-financed. The liquidity position has also tightened. The current ratio, which measures the ability to pay short-term bills, stood at a barely adequate 1.09 in FY2024. This combination of rising debt and thin liquidity creates a worsening risk profile, making the company more vulnerable to economic downturns or interest rate hikes.
The cash flow statement confirms the deteriorating operational health. After three years of positive operating cash flow from FY2020 to FY2022, which peaked at $406 million, the company's operations burned through -$15.7 million in cash in FY2023 before recovering to a positive $109.2 million in FY2024. The trend in free cash flow, which is cash from operations minus capital expenditures, is even more alarming. FCF was consistently positive and strong from FY2020 to FY2022, but became negative in both FY2023 (-$219.3 million) and FY2024 (-$59.1 million). This means the company did not generate enough cash from its business to cover its investments, let alone its dividends and buybacks, forcing it to rely on debt.
Despite these operational challenges, management has been aggressive with shareholder payouts. The company has consistently paid and grown its dividend, with the dividend per share increasing every year from $0.40 in FY2020 to $1.25 in FY2024, more than tripling in five years. Alongside dividends, Sonic has actively repurchased its own stock. The number of shares outstanding has been reduced significantly, falling from 43 million in FY2020 to 34 million in FY2024. This represents a substantial return of capital through a lower share count, which typically boosts earnings per share.
From a shareholder's perspective, these capital actions appear friendly on the surface but are questionable in practice. The reduction in share count did help amplify EPS growth, but this was achieved with borrowed money, not internal cash flow. This strategy is not sustainable. The dividend, while growing, looks increasingly unaffordable. In FY2024, the company paid out $40.8 million in dividends while generating negative free cash flow, meaning the dividend was effectively funded by debt. Similarly, it spent $34.4 million on buybacks. A shareholder-friendly approach would be to fund these returns with predictable, organic cash flow. Sonic's strategy of borrowing to fund buybacks and dividends while business fundamentals are weakening is a major red flag.
In conclusion, Sonic Automotive's historical record does not inspire confidence in its execution or resilience. The performance has been choppy, characterized by a period of debt-fueled growth followed by a recent stall in revenue, declining margins, and a collapse in free cash flow. The single biggest historical strength was its ability to rapidly grow revenue post-pandemic. However, its biggest weakness is the disconnect between its aggressive capital return policy and its deteriorating cash generation, leading to a much riskier balance sheet. The past five years show a company prioritizing financial engineering over sustainable, cash-generative operational performance.
The U.S. auto retail industry is navigating a period of normalization after several years of unprecedented volatility. For the next 3-5 years, the landscape will be shaped by affordability challenges, the accelerating shift to electric vehicles (EVs), and ongoing industry consolidation. High interest rates and vehicle prices that remain elevated post-pandemic are constraining consumer demand, particularly for new vehicles. This is expected to keep the market's overall sales volume growth in the low single digits, with the new vehicle market projected to grow at a CAGR of around 2-3%. A key catalyst for demand would be a significant reduction in interest rates by central banks, which would directly lower monthly payments for consumers. The transition to EVs presents both an opportunity and a threat; while it drives new sales cycles, it also disrupts the highly profitable traditional service business, as EVs require less routine maintenance.
Competition within the auto dealer sub-industry is expected to intensify, but not from new entrants. The capital requirements and franchise laws create formidable barriers to entry for new franchised dealerships. Instead, the battle will be fought among existing players, with larger, well-capitalized groups like AutoNation, Penske, and Lithia Motors continuing to acquire smaller, independent dealerships to gain scale. This consolidation trend is driven by the need for economies of scale in marketing, technology investment, and inventory management. The ability to source used vehicles efficiently and operate a seamless omnichannel (online and in-person) experience will be critical differentiators. For Sonic, this means its future growth depends less on broad market tailwinds and more on its specific strategic execution, particularly its ability to fix its struggling EchoPark segment and grow its high-margin fixed operations.
As of December 24, 2025, Sonic Automotive's stock closed at $64.33, placing its market capitalization at approximately $2.20 billion and positioning it in the lower half of its 52-week range. Key valuation metrics for this auto dealer include a trailing P/E ratio of 17.3x, a more attractive forward P/E of 10.5x, and a Price-to-Book ratio of 2.05x. The market's cautious pricing reflects the core tension between Sonic's capital-intensive growth ambitions for its EchoPark segment and its highly leveraged financial position, which creates significant risk for investors.
Multiple valuation methods suggest the stock may be undervalued. Wall Street analyst consensus points to a median 12-month price target of around $78.00, implying a 21.3% upside. A discounted cash flow (DCF) analysis, using conservative assumptions to account for volatile cash flows and high leverage (Debt-to-EBITDA of 5.89x), yields a fair value range of $75–$95. Furthermore, yield-based metrics offer a mixed but generally supportive view; while the recent TTM free cash flow yield is an unsustainably high 25%, a normalized yield suggests a fair value between $65-$85. The 2.36% dividend yield is respectable, but its quality is questionable as it has been funded by debt during periods of negative cash flow.
A comparison of valuation multiples offers a more nuanced picture. While the stock's forward P/E of 10.5x is in line with its historical average, suggesting it's reasonably priced based on future earnings expectations, its trailing P/E of 17.3x is significantly above its 5-year average of 6.73x. When compared to peers like AutoNation and Lithia Motors, Sonic's forward P/E of ~10.5x appears to trade at a premium, which seems unjustified given its weaker margins, higher leverage, and greater execution risk. Applying a more appropriate peer-median multiple would imply a share price closer to $55, suggesting the stock might be overvalued relative to its competitors.
Triangulating these different valuation signals—optimistic analyst targets and DCF models versus a more cautious peer comparison—leads to a final fair value estimate of $70–$85, with a midpoint of $77.50. This suggests the stock is currently undervalued, with a potential upside of over 20%. However, this value is contingent on successful execution of the company's turnaround and growth strategy. The valuation is highly sensitive to changes in investor sentiment and the company's ability to manage its heavy debt load; a failure to improve performance could quickly erase the current margin of safety.
Bill Ackman would likely view Sonic Automotive in 2025 as a compelling but speculative 'sum-of-the-parts' story, where a stable, cash-generating franchised dealer business is funding a high-risk, high-reward growth engine in its EchoPark used-car segment. He would be attracted to the extremely low valuation, with a forward P/E ratio around 6x-8x, and the clear catalyst for value creation if EchoPark's national expansion proves profitable. However, he would be highly cautious about the execution risk, the intense competition from market leader CarMax, and SAH's operating margins of 4-5%, which lag best-in-class peers like Penske and Asbury that operate in the 7-8% range. While the potential for a significant re-rating is present, the lack of a dominant brand and the unproven economics of its core growth strategy would likely keep him on the sidelines for now. For retail investors, this makes SAH a high-risk bet on management's ability to execute a difficult growth plan against tough competition. Ackman would likely wait for concrete proof of sustained, profitable unit economics from EchoPark before considering an investment.
Warren Buffett would likely view Sonic Automotive as an investment that violates his core principles of simplicity and predictability. While the traditional franchised dealership business generates steady cash flow, the company's major strategic bet on the high-growth, high-risk EchoPark used-car segment makes future earnings difficult to forecast. Buffett avoids speculative ventures, and with operating margins of 4-5% lagging behind more disciplined peers like Penske (7-8%) or Group 1 (6-7%), he would see no evidence of a durable competitive advantage or 'moat'. For retail investors, the key takeaway is that SAH is a bet on a challenging growth initiative rather than an investment in a proven, market-leading business, making it an unlikely choice for a conservative value investor like Buffett.
Charlie Munger would approach the auto dealership industry with deep skepticism, seeking a rare business with a durable competitive advantage and rational management that avoids obvious mistakes. He would view Sonic Automotive's core franchised dealership business as mediocre, protected by weak regulatory moats but subject to intense competition and cyclicality. The company's primary growth strategy, the EchoPark used-car chain, would be a major red flag for Munger, as it involves deploying massive amounts of capital to compete head-on with a superior, scaled incumbent like CarMax—a low-percentage bet he would typically shun. Sonic's operating margins of around 4-5% lag behind more disciplined peers like Penske and Asbury, which achieve 7-8%, signaling a lack of pricing power or operational excellence. For Munger, Sonic's low valuation would not compensate for its fair-at-best business quality and a highly questionable capital allocation strategy that risks destroying shareholder value. Munger's view would likely change only if Sonic abandoned the capital-intensive EchoPark expansion to focus on its core business, or if EchoPark somehow demonstrated years of sustained, high-return-on-capital results. If forced to choose in this sector, Munger would likely prefer Penske Automotive Group (PAG) for its high-quality business mix and industry-leading ROE of over 25%, or Asbury Automotive Group (ABG) for its superior operating margins of 7-8% and a more balanced growth strategy. Management primarily uses its cash to fund the expansion of EchoPark, which Munger would view as a high-risk reinvestment choice; while the company does offer a modest dividend and buybacks, the capital allocation is heavily skewed towards this unproven venture, which contrasts with peers who may focus more on returning capital to shareholders when high-return projects are unavailable.
Sonic Automotive's competitive standing is best understood through its two distinct business segments: its traditional franchised dealerships and its newer, high-growth EchoPark used vehicle stores. The franchised segment competes directly with other large, publicly traded dealer groups like AutoNation, Penske, and Lithia. In this arena, Sonic is a mid-sized player. While it possesses a solid portfolio of luxury and import brands, it lacks the sheer scale and geographic diversification of its largest rivals. This can impact its ability to negotiate with manufacturers, secure inventory, and absorb regional economic downturns as effectively as larger competitors.
The EchoPark segment is Sonic's strategic bet on the future of auto retail, aiming to capture a larger share of the lucrative used car market. This positions it directly against CarMax, the market leader, and the digital-first models of companies like Carvana. EchoPark's model, which focuses on nearly-new vehicles at fixed prices, is compelling but capital-intensive and requires significant investment to scale. The success of this venture is the primary driver of Sonic's potential upside but also its greatest source of risk, as execution missteps or intense competition could erode profitability and shareholder value.
From a financial perspective, SAH often trades at a lower valuation multiple (such as Price-to-Earnings) than its direct franchised dealer peers. This discount reflects the market's uncertainty regarding the long-term profitability and competitive success of the EchoPark expansion. While the company has demonstrated solid operational performance in its core business, its overall financial health is intrinsically tied to its ability to manage the high costs and logistical challenges of building a national used car brand from the ground up. Investors are therefore evaluating a more complex story than a pure-play dealership group, balancing the steady, cash-generating core business with a high-stakes growth initiative.
AutoNation (AN) is one of the largest automotive retailers in the U.S., presenting a formidable challenge to Sonic Automotive (SAH) primarily through its sheer scale and brand recognition. With significantly higher revenue and a larger network of dealerships, AutoNation benefits from greater economies of scale in purchasing, advertising, and back-office operations. While Sonic's dual strategy with its EchoPark used-car stores offers a distinct growth narrative, it also introduces execution risk not present in AutoNation's more mature and focused business model. SAH is the smaller, more agile player with a potentially higher growth ceiling from its EchoPark segment, whereas AN represents a more stable, established industry leader with a proven, albeit less aggressive, growth strategy.
In Business & Moat, AutoNation has a distinct advantage. Brand: AutoNation's national brand recognition is significantly stronger than Sonic's regional footprint, supported by a marketing budget in the hundreds of millions. Switching Costs: Both companies face low switching costs, as customers can easily shop at different dealerships. Scale: AN is the clear winner with revenues exceeding $25 billion annually, dwarfing SAH's revenue of around $14 billion, granting it superior leverage with suppliers and lenders. Network Effects: Neither has strong network effects, but AN's larger service network offers more convenience to its customer base. Regulatory Barriers: Both benefit from state franchise laws that protect incumbent dealers. Overall Winner: AutoNation, due to its massive scale and superior brand strength which create a more durable competitive advantage.
Financially, the two companies present a mixed picture. Revenue Growth: SAH has shown comparable or sometimes higher percentage revenue growth in recent periods, largely driven by the EchoPark expansion, while AN's growth is more modest but from a much larger base. Margins: AN typically posts slightly higher operating margins (around 6% vs. SAH's 4-5%), indicating better operational efficiency and scale benefits. Profitability: Both companies have strong Return on Equity (ROE), often exceeding 20%, but AN's is generally more consistent. Leverage: Both manage debt prudently, with Net Debt/EBITDA ratios typically in the 2.0x-3.0x range, which is healthy for the industry. Cash Generation: AN's larger scale allows it to generate significantly more free cash flow. Overall Financials Winner: AutoNation, for its superior margins and cash flow generation, which signal a more resilient financial profile.
Looking at Past Performance, AutoNation has delivered more consistent shareholder returns over the long term. Growth: Over the last five years, both companies have seen strong EPS growth, but AN has been more consistent in translating revenue into profit. Margin Trend: AN has shown more stable margin performance, whereas SAH's margins have been more volatile due to the costs associated with expanding EchoPark. TSR: AutoNation's 5-year Total Shareholder Return has generally outpaced SAH's, reflecting investor confidence in its stable model. Risk: Both stocks exhibit similar market volatility (beta around 1.5), but AN's larger size and stronger balance sheet present a lower fundamental risk profile. Overall Past Performance Winner: AutoNation, based on its stronger and more consistent long-term shareholder returns and lower operational risk.
For Future Growth, Sonic Automotive arguably has a more compelling, albeit riskier, narrative. Revenue Opportunities: SAH's primary growth driver is the national expansion of EchoPark, which targets a massive used car market and offers a higher potential growth rate than AN's more mature business. AN's growth relies on acquisitions and optimizing its existing store footprint, which is a slower but more predictable path. Cost Efficiency: AN's scale gives it an edge in ongoing cost management. Market Demand: Both are subject to the same macroeconomic trends, such as interest rates and consumer confidence. Guidance: Analysts often project higher percentage growth for SAH due to the EchoPark factor, but with a wider range of outcomes. Overall Growth Outlook Winner: Sonic Automotive, for its higher potential ceiling, though this comes with significantly higher execution risk.
In terms of Fair Value, Sonic Automotive often trades at a discount to AutoNation. Valuation Multiples: SAH's forward P/E ratio is frequently lower (e.g., 6x-8x) compared to AN's (8x-10x). Similarly, its EV/EBITDA multiple tends to be lower. This discount reflects the market's pricing-in of the risks associated with the EchoPark rollout. Dividend Yield: Both companies have historically prioritized share buybacks over high dividends, but AN's buyback program has been more aggressive. Quality vs. Price: AN is the higher-quality, more stable company, and its premium valuation reflects that. SAH offers a lower price, but this comes with higher uncertainty. Better Value Today: Sonic Automotive, for investors willing to take on the execution risk of EchoPark in exchange for a lower entry multiple and higher growth potential.
Winner: AutoNation over Sonic Automotive. AutoNation stands as the winner due to its superior scale, stronger brand, higher and more stable profitability, and a proven track record of shareholder returns. Its key strengths are its market leadership (#1 public dealer group by revenue for many years), operational efficiency leading to better margins (~6% operating margin), and a more predictable business model. SAH's primary strength is the significant growth potential of its EchoPark segment, but this is also its notable weakness, as the high investment costs have historically pressured margins and its success is not guaranteed against fierce competition. The primary risk for AN is cyclical downturns in auto sales, while the primary risk for SAH is the execution and profitability of its EchoPark expansion. AutoNation's established and resilient model makes it the stronger, more reliable investment choice today.
Penske Automotive Group (PAG) differentiates itself from Sonic Automotive (SAH) with its heavy focus on premium/luxury brands and significant international presence, including operations in the UK, Germany, and Australia. It also has a substantial commercial truck dealership business, which provides diversification away from the consumer auto cycle. In contrast, SAH is almost entirely U.S.-focused and, while it has luxury brands, its portfolio is more balanced. SAH's key differentiator is its EchoPark used-car superstores, a segment PAG does not directly compete in with a standalone brand. This makes PAG a more diversified, premium-focused operator, while SAH is a U.S.-centric company with a specific high-growth bet on the used car market.
In Business & Moat, Penske has a stronger position. Brand: PAG's association with premium brands like BMW, Mercedes-Benz, and Audi, along with its well-regarded commercial truck business (Penske Truck Leasing is a separate entity but brand association helps), gives it a stronger moat than SAH's more mainstream brand portfolio. Switching Costs: Low for both in auto retail, but PAG's commercial truck service business enjoys stickier customer relationships. Scale: PAG's revenues are significantly higher (over $27 billion) than SAH's (~$14 billion), providing greater scale. Network Effects: Limited for both, but PAG's global network provides some diversification benefits. Regulatory Barriers: Both benefit from dealer franchise laws. Overall Winner: Penske Automotive Group, due to its premium brand focus, international diversification, and commercial truck segment which create a more resilient and wider moat.
Financially, Penske consistently demonstrates superior performance. Revenue Growth: SAH may show higher percentage growth in some periods due to EchoPark, but PAG's diversified segments provide more stable and predictable revenue streams. Margins: PAG consistently achieves higher operating margins (often 7-8%) compared to SAH (4-5%). This is a direct result of its focus on high-margin luxury vehicles, as well as its profitable service and commercial truck businesses. Profitability: PAG's Return on Equity (ROE) is typically among the best in the industry, often exceeding 25%. Leverage: Both companies maintain healthy balance sheets, but PAG's stronger and more diverse cash flows give it greater financial flexibility. Cash Generation: PAG's free cash flow is substantially larger and more stable. Overall Financials Winner: Penske Automotive Group, for its demonstrably superior margins, profitability, and diversified cash flow streams.
Analyzing Past Performance, Penske has been a more reliable performer. Growth: Both have grown revenues and earnings, but PAG's growth has been more profitable, with less volatility in its earnings stream. Margin Trend: PAG has successfully expanded its margins over the past five years, while SAH's margins have fluctuated with its investment in EchoPark. TSR: Penske has delivered outstanding Total Shareholder Return over the last 3- and 5-year periods, often leading the peer group. Risk: PAG's diversification across geographies and segments (consumer auto, commercial truck) makes it fundamentally less risky than SAH's concentrated U.S. consumer focus. Its stock beta is also often slightly lower. Overall Past Performance Winner: Penske Automotive Group, for its superior shareholder returns driven by profitable growth and a lower-risk business model.
Regarding Future Growth, the comparison is nuanced. Revenue Opportunities: SAH has a clearer, albeit riskier, path to explosive growth through the EchoPark build-out. PAG's growth is more incremental, coming from acquisitions, growth in its commercial vehicle segment, and expansion of its CarShop used vehicle brand in the U.S. and U.K. (which is less central to its strategy than EchoPark is to SAH). Cost Efficiency: PAG's scale and mature operations give it an edge. Market Demand: PAG's exposure to the heavy-duty truck market provides a hedge against downturns in consumer auto demand. Overall Growth Outlook Winner: Sonic Automotive, for its higher-octane growth potential from EchoPark, but this is a bet on a single, high-risk strategy versus PAG's more balanced approach.
From a Fair Value perspective, PAG often trades at a premium valuation, which is justified by its superior quality. Valuation Multiples: PAG's forward P/E ratio (e.g., 8x-11x) is typically higher than SAH's (6x-8x). The market rewards PAG's higher margins, diversification, and consistent execution. Dividend Yield: PAG has a long history of paying and growing its dividend, offering a more attractive yield (~2-3%) than SAH (~1.5-2.5%). Quality vs. Price: PAG is a prime example of 'you get what you pay for.' It is a higher-quality business that commands a higher multiple. SAH is cheaper for a reason: its future is less certain. Better Value Today: Penske Automotive Group, as its premium valuation is well-supported by its superior financial performance and lower-risk profile, making it a better risk-adjusted value.
Winner: Penske Automotive Group over Sonic Automotive. Penske is the clear winner due to its superior business model, characterized by premium brand focus, international diversification, and a profitable commercial truck segment. These factors result in industry-leading margins (7-8% operating margin), high returns on equity (>25%), and more stable cash flows. SAH's key strength is the untapped growth potential of EchoPark. However, this is also its weakness, as the strategy is capital-intensive and faces stiff competition, making its future earnings path uncertain. The primary risk for PAG is its exposure to global economic conditions and the high-end consumer, while SAH's main risk is the potential failure to profitably scale EchoPark. Penske's proven, diversified, and highly profitable model makes it a fundamentally stronger company and a more compelling investment.
Lithia Motors (LAD) has become the largest automotive retailer in the U.S. by revenue, primarily through an aggressive acquisition-led growth strategy. This sets it apart from Sonic Automotive (SAH), which has grown more organically and through its specific EchoPark initiative. Lithia's sheer scale is its defining characteristic, with a vast and rapidly expanding network of dealerships across North America. While SAH focuses on a dual-pronged approach within a more constrained footprint, Lithia's strategy is centered on acquiring dealerships, particularly in underserved markets, and integrating them into its network to drive synergies. LAD is a growth-by-acquisition juggernaut, whereas SAH is a more focused operator betting on a specific used-car concept.
For Business & Moat, Lithia's scale is its primary advantage. Brand: Neither has a strong national consumer-facing brand like AutoNation, as both operate primarily under the names of their acquired dealerships. Switching Costs: Low for both, typical of the industry. Scale: Lithia is the undisputed leader, with annual revenues approaching $30 billion, significantly larger than SAH's (~$14 billion). This massive scale provides substantial advantages in vehicle sourcing, financing, and advertising. Network Effects: Lithia's Driveway platform aims to create a network effect by connecting its vast physical inventory to a national digital storefront, an area where it is more advanced than SAH. Regulatory Barriers: Both benefit from franchise laws. Overall Winner: Lithia Motors, due to its unparalleled scale and a more developed digital strategy (Driveway) that leverages its massive physical network.
Financially, Lithia's aggressive growth model shapes its profile. Revenue Growth: Lithia consistently posts industry-leading revenue growth, often in the double digits, driven by its relentless pace of acquisitions. This far outstrips SAH's growth rate. Margins: Despite its size, Lithia's operating margins are often comparable to or slightly lower than SAH's (both typically in the 4-6% range), as integrating acquisitions can be costly and temporarily dilute margins. Profitability: Both generate strong ROE, but Lithia's has been exceptionally high in recent years. Leverage: Lithia carries a higher debt load to fund its acquisitions, with a Net Debt/EBITDA ratio that can sometimes be higher than SAH's, though still managed within reasonable limits. Cash Generation: Lithia's cash flow is heavily reinvested into acquisitions, resulting in lower free cash flow available for shareholder returns compared to its operating cash flow. Overall Financials Winner: Lithia Motors, as its explosive, albeit acquisition-fueled, growth in revenue and earnings is hard to ignore, even with slightly higher leverage.
In Past Performance, Lithia's track record of growth is exceptional. Growth: Lithia's 5-year revenue and EPS CAGR (Compound Annual Growth Rate) are among the highest in the entire automotive retail sector, dwarfing SAH's. Margin Trend: Both have seen margin expansion in favorable market conditions, but Lithia has proven it can maintain solid margins while integrating dozens of new stores. TSR: Lithia's Total Shareholder Return over the past five years has been phenomenal, significantly outperforming SAH and most other peers, as the market has rewarded its successful acquisition strategy. Risk: Lithia's model carries significant integration risk and higher financial leverage, making it potentially more vulnerable in a downturn than SAH. Overall Past Performance Winner: Lithia Motors, for its sector-leading growth and shareholder returns, which have more than compensated for the associated risks.
Looking at Future Growth, Lithia has a clear and stated plan. Revenue Opportunities: Lithia has an ambitious long-term plan to reach $50 billion in revenue, which it plans to achieve through continued acquisitions and the growth of its Driveway digital platform. This provides a very clear, albeit challenging, growth runway. SAH's growth is less certain and hinges almost entirely on the success of EchoPark. Cost Efficiency: Lithia's strategy is built on extracting synergies from acquired dealerships, giving it a clear path to cost improvements. Market Demand: Both are exposed to the same macro risks. Overall Growth Outlook Winner: Lithia Motors, because its acquisition pipeline provides a more tangible and proven path to continued growth compared to SAH's concentrated bet on EchoPark.
On Fair Value, the market prices in Lithia's growth, but it often remains reasonably valued. Valuation Multiples: Lithia's forward P/E ratio (e.g., 7x-9x) is often similar to or only slightly higher than SAH's (6x-8x), which could be seen as attractive given its superior growth profile. The market seems to discount LAD's valuation due to the perceived risks of its acquisition strategy and higher debt load. Dividend Yield: Both have modest dividend yields, prioritizing reinvestment in the business. Quality vs. Price: Lithia offers superior growth at a price that is not significantly more expensive than SAH. It represents a 'growth at a reasonable price' proposition. Better Value Today: Lithia Motors, as its premium growth profile does not command a significant valuation premium over SAH, offering a more compelling risk/reward balance.
Winner: Lithia Motors over Sonic Automotive. Lithia wins due to its unmatched scale, proven acquisition-led growth strategy, and exceptional track record of creating shareholder value. Its key strengths are its aggressive but successful M&A machine, which has delivered industry-leading revenue growth (>20% CAGR over 5 years), and its Driveway platform, which effectively leverages its vast physical footprint. SAH's strength lies in the focused potential of EchoPark, but its weakness is its smaller scale and the high concentration of risk in this single initiative. The primary risk for Lithia is a misstep in its acquisition strategy or an inability to effectively integrate new stores, along with its higher leverage. For SAH, the risk remains the profitability and competitive positioning of EchoPark. Lithia's dynamic and proven growth model makes it the more compelling investment story.
CarMax (KMX) represents the most direct and formidable competitor to Sonic Automotive's (SAH) EchoPark growth strategy. As the largest retailer of used vehicles in the U.S., CarMax operates on a massive scale with a nationally recognized brand built over decades. The comparison here is not between the entire SAH business and KMX, but rather EchoPark versus CarMax. CarMax's business model is pure-play used car retail, with a no-haggle pricing policy and an omnichannel strategy that seamlessly integrates its online and physical stores. EchoPark aims to replicate much of this model but at a much earlier stage of its development and with a focus on nearly-new (1-4 year old) vehicles. CarMax is the established giant, while EchoPark is the challenger.
In Business & Moat, CarMax has a nearly insurmountable lead. Brand: CarMax is a household name in the used car market, synonymous with a transparent and low-pressure buying experience. EchoPark's brand awareness is minimal in comparison. Switching Costs: Low for both, but CarMax's brand trust can create customer loyalty. Scale: CarMax sells over 800,000 retail used vehicles annually, a volume that EchoPark (~75,000 units) cannot match. This scale gives KMX unparalleled advantages in vehicle acquisition, reconditioning, and data analytics. Network Effects: CarMax's nationwide network of stores and its large online inventory create a powerful network effect; more inventory attracts more buyers, and more transaction data improves pricing and sourcing. Regulatory Barriers: Less relevant in the used car market compared to new car franchising. Overall Winner: CarMax, by a very wide margin, due to its dominant brand, immense scale, and data-driven operational advantages.
From a financial standpoint, the comparison highlights the challenges of scale. Revenue Growth: EchoPark's small base allows for very high percentage growth rates as it opens new stores, which can exceed KMX's more modest growth. However, CarMax's total revenue (over $25 billion) is generated entirely from used vehicles and related services, making it a much larger and more stable enterprise. Margins: CarMax consistently generates higher gross profit per used unit (over $2,200) than EchoPark. Its operating margins (3-4%), while slim, are a result of a highly optimized and mature business model, whereas EchoPark is still striving for consistent store-level profitability. Profitability: CarMax has a long track record of consistent profitability, while EchoPark's contribution to SAH's bottom line is still developing and can be negative during expansion phases. Leverage: KMX has a solid balance sheet, with its debt primarily supporting its auto finance arm (CAF), which is a significant profit center. Overall Financials Winner: CarMax, for its proven profitability, scale-driven efficiency, and the strength of its integrated finance operation.
Reviewing Past Performance, CarMax's history demonstrates resilience and market leadership. Growth: CarMax has a long history of steady growth in unit sales and revenue, surviving multiple economic cycles. EchoPark is too new to have a meaningful long-term track record. Margin Trend: CarMax's margins have been stable, though they can be compressed by wholesale market volatility. EchoPark's margins are not yet stable. TSR: CarMax has been a strong long-term performer for investors, though its stock can be volatile based on used car market trends. SAH's stock performance is a blend of its two segments. Risk: Investing in CarMax is a bet on the broad used car market, while investing in EchoPark is a much riskier bet on a new entrant's ability to execute a difficult growth plan. Overall Past Performance Winner: CarMax, for its decades-long track record of successful execution and market leadership.
For Future Growth, EchoPark has the higher theoretical growth rate. Revenue Opportunities: EchoPark has a vast runway for growth simply by opening new stores in untapped markets across the U.S. CarMax's growth is more about market share gains, online expansion, and service offerings, as its physical footprint is already mature. Cost Efficiency: CarMax's scale provides an enduring cost advantage in reconditioning and logistics. Market Demand: Both are highly sensitive to used vehicle pricing, interest rates, and consumer credit availability. CarMax's data science capabilities give it an edge in navigating these market shifts. Overall Growth Outlook Winner: EchoPark, purely on the basis of its potential white-space expansion, but CarMax has a much higher probability of achieving its more modest growth targets.
From a Fair Value standpoint, CarMax typically commands a growth-oriented valuation. Valuation Multiples: CarMax's P/E ratio (often 15x-20x or higher) is significantly richer than that of traditional dealer groups like SAH (6x-8x). This reflects its status as a market leader and a pure-play growth company. The market values SAH as a traditional dealership with a speculative growth option attached. Dividend Yield: Neither company is known for a high dividend yield. Quality vs. Price: CarMax is a high-quality, wide-moat business that commands a premium price. SAH (and by extension, EchoPark) is a value play with high uncertainty. Better Value Today: CarMax, for investors seeking a proven market leader. For those with a high risk tolerance, SAH's lower multiple may be appealing, but it is not a better risk-adjusted value proposition.
Winner: CarMax over Sonic Automotive (EchoPark). CarMax is the decisive winner as the established, scaled, and profitable market leader in the used vehicle space. Its key strengths are its powerful national brand (#1 used car retailer), unparalleled operational scale (800,000+ retail units sold annually), and a data-driven business model that creates a significant competitive moat. EchoPark's main strength is its potential for rapid unit growth from a small base. Its weaknesses are its lack of brand recognition, unproven profitability at scale, and the immense challenge of competing against CarMax. The primary risk for KMX is a severe downturn in the used car market. The primary risk for SAH is that its multi-billion dollar investment in EchoPark fails to generate adequate returns, destroying shareholder value. CarMax's proven model and dominant market position make it the superior entity.
Asbury Automotive Group (ABG) is a close competitor to Sonic Automotive (SAH) in terms of size and business strategy, making for a very direct comparison. Both operate a portfolio of franchised dealerships and have made significant strategic pushes into digital retail and used vehicle sales. Asbury's major move was its 2021 acquisition of Larry H. Miller Dealerships, which massively scaled the company, and its development of the 'Clicklane' digital platform. This mirrors SAH's dual focus on its core franchise business and a high-growth initiative (EchoPark). Asbury is now slightly larger than SAH by revenue, with a business model that is perhaps more balanced and less reliant on a single, high-risk growth venture.
Regarding Business & Moat, the two are very closely matched. Brand: Both operate primarily under the local names of their acquired dealerships and lack a strong, unifying national brand. Switching Costs: Low for both. Scale: Following the LHM acquisition, Asbury's revenue (over $15 billion) has surpassed SAH's (~$14 billion), giving it a slight scale advantage. Network Effects: Both are developing digital tools (Clicklane for ABG, EchoPark's online presence for SAH) to create network effects, but neither has a decisive lead. Regulatory Barriers: Both benefit equally from franchise laws. Overall Winner: Asbury Automotive Group, by a narrow margin, due to its recently enhanced scale and more geographically diverse footprint following the LHM acquisition.
Financially, Asbury has demonstrated strong operational execution. Revenue Growth: Asbury's revenue growth has been supercharged by the LHM acquisition, showing a higher growth rate than SAH in recent periods. Margins: Asbury has achieved impressive operating margins (often 7-8%), which are consistently higher than SAH's (4-5%). This indicates superior profitability and operational efficiency, likely a result of a favorable brand mix and strong execution in high-margin areas like finance and insurance (F&I). Profitability: Asbury's Return on Equity (ROE) is exceptionally strong, often ranking near the top of the peer group. Leverage: Asbury took on significant debt for the LHM acquisition, pushing its Net Debt/EBITDA ratio higher, but the company has a clear plan to de-lever. Overall Financials Winner: Asbury Automotive Group, due to its significantly higher margins and superior profitability, which outweigh its temporarily higher leverage.
In Past Performance, Asbury's recent strategic moves have paid off for investors. Growth: Asbury's EPS growth has been stellar over the last three years, benefiting from both strong market conditions and its successful acquisitions. Margin Trend: ABG has shown a stronger trend of margin expansion compared to SAH. TSR: Asbury's Total Shareholder Return has outperformed SAH's over the last 1- and 3-year periods, as the market has positively received its strategic direction and financial results. Risk: Asbury's key risk was the integration of its massive acquisition, which it has managed well so far. SAH's risk is more forward-looking and tied to the execution of EchoPark. Overall Past Performance Winner: Asbury Automotive Group, for delivering superior growth in profits and shareholder returns.
For Future Growth, both companies have compelling but different paths. Revenue Opportunities: SAH's growth is concentrated in the EchoPark story. Asbury's growth plan is more balanced, focusing on integrating LHM, growing its Total Care Auto service contract business, further dealership acquisitions, and expanding its Clicklane digital platform. Asbury's path appears more diversified and potentially less risky. Cost Efficiency: Asbury has a clear path to extracting synergies from its recent acquisitions. Market Demand: Both are equally exposed to macro trends. Overall Growth Outlook Winner: Asbury Automotive Group, as its multi-faceted growth strategy appears more robust and less dependent on a single outcome than SAH's focus on EchoPark.
In Fair Value, both companies often trade at similar, relatively low valuation multiples. Valuation Multiples: Both ABG and SAH typically trade at low forward P/E ratios (e.g., 5x-7x), suggesting the market is skeptical of the entire sector's future prospects. Neither typically commands a premium. Dividend Yield: Both have modest dividend policies, preferring to reinvest capital. Quality vs. Price: Asbury appears to be a higher-quality operator (evidenced by its higher margins) trading at a similar price to SAH. This suggests Asbury may be undervalued relative to its peer. Better Value Today: Asbury Automotive Group, because it offers superior profitability and a more diversified growth strategy at a valuation that is roughly equivalent to SAH's.
Winner: Asbury Automotive Group over Sonic Automotive. Asbury wins due to its superior profitability, a more diversified and arguably less risky growth strategy, and a strong track record of execution, particularly with its transformative LHM acquisition. Its key strengths are its best-in-class operating margins (7-8%), strong returns on capital, and a balanced approach to growth that combines acquisitions with digital expansion. SAH's primary strength is the explosive growth potential of EchoPark, but its weakness is its lower profitability and the high concentration of risk in that single venture. The primary risk for Asbury is managing its higher debt load and continuing to successfully integrate its acquisitions. For SAH, the risk remains the unproven long-term profitability model of EchoPark. Asbury's more proven and profitable model makes it the stronger investment case.
Group 1 Automotive (GPI) is arguably the most direct competitor to Sonic Automotive (SAH) in terms of scale, geographic footprint, and business mix. Both are multi-regional U.S. dealer groups with a significant presence in the U.K. market. Group 1's strategy has been one of steady operational improvement and disciplined capital allocation, including both acquisitions and share repurchases. Unlike SAH, GPI has not made a singular, transformative bet on a standalone used car brand like EchoPark. Instead, it has focused on optimizing its existing dealership portfolio and growing its used vehicle operations within that traditional framework, making it a more conservative and traditional operator compared to SAH.
In Business & Moat, the two companies are very similar. Brand: Both operate under local dealership names and have limited national brand equity. GPI's U.K. presence is a key differentiator. Switching Costs: Low for both. Scale: The two companies are very close in size, with annual revenues for both hovering in the $14-$16 billion range, depending on recent performance and acquisitions. Neither has a meaningful scale advantage over the other. Network Effects: Limited for both. Regulatory Barriers: Both benefit from the same franchise law protections. Overall Winner: Draw. The business models and competitive positions of SAH and GPI are remarkably similar, with GPI's U.K. operations providing diversification that is offset by SAH's EchoPark growth initiative.
Financially, Group 1 often exhibits stronger operational discipline. Revenue Growth: Growth rates for both have been similar in recent years, driven by a combination of strong demand and acquisitions. Margins: Group 1 has historically posted slightly stronger and more consistent operating margins (often in the 6-7% range) compared to SAH (4-5%). This suggests better cost control and a stronger focus on the highly profitable parts and service segment. Profitability: GPI's Return on Equity (ROE) is typically very strong and often slightly higher than SAH's, reflecting its margin advantage. Leverage: Both maintain prudent balance sheets with similar Net Debt/EBITDA ratios. Cash Generation: GPI is known for its strong free cash flow generation and has a history of returning a significant portion of it to shareholders via buybacks. Overall Financials Winner: Group 1 Automotive, due to its superior and more consistent profit margins and a strong record of disciplined capital allocation.
Looking at Past Performance, Group 1 has been a very steady performer. Growth: Both companies have delivered solid growth, but GPI's has been achieved with less operational volatility. Margin Trend: GPI has shown a more consistent ability to maintain and expand its margins through different market cycles. TSR: Over multiple time frames, Group 1's Total Shareholder Return has often been superior to SAH's, as the market has rewarded its operational consistency and shareholder-friendly capital returns. Risk: With its more traditional and proven business model, GPI presents a lower fundamental risk profile than SAH with its high-stakes EchoPark venture. Overall Past Performance Winner: Group 1 Automotive, for its consistent operational excellence, which has translated into stronger shareholder returns with lower perceived risk.
For Future Growth, Sonic has the higher-risk, higher-reward profile. Revenue Opportunities: SAH's growth story is dominated by the potential of EchoPark. Group 1's growth will come from more traditional avenues: dealership acquisitions, expanding its parts and service business, and growing used vehicle sales through its existing infrastructure and its 'AcceleRide' digital platform. GPI's path is slower but more predictable. Cost Efficiency: GPI's track record suggests a slight edge in managing costs. Market Demand: Both have similar exposure, although GPI's U.K. operations add a layer of currency and international economic risk/diversification. Overall Growth Outlook Winner: Sonic Automotive, because the theoretical ceiling for EchoPark's growth is much higher than that of GPI's more incremental strategy, though the probability of reaching it is lower.
In terms of Fair Value, both stocks typically trade at low multiples characteristic of the auto dealer industry. Valuation Multiples: Both GPI and SAH usually trade at forward P/E ratios in the 5x-8x range. Often, GPI will trade at a slight premium, which is justified by its higher margins and more consistent performance. Dividend Yield: Both have modest dividend yields, with a greater emphasis on share buybacks. Quality vs. Price: GPI represents a slightly higher-quality, more predictable business that sometimes trades at a slight premium. SAH is the slightly cheaper option that comes with more uncertainty. Better Value Today: Group 1 Automotive, as any small valuation premium is more than justified by its superior profitability and lower-risk business model, making it a better risk-adjusted choice.
Winner: Group 1 Automotive over Sonic Automotive. Group 1 wins due to its consistent operational excellence, superior profitability, and a disciplined, lower-risk strategy that has generated strong shareholder returns. Its key strengths are its industry-leading operating margins (6-7%), a proven track record of efficient capital allocation, and a stable business model with international diversification. SAH's main strength is the significant, but highly uncertain, growth potential of EchoPark. Its weakness is its historically lower and more volatile profitability compared to GPI. The primary risk for GPI is its exposure to the U.K. economy and currency fluctuations, while the risk for SAH is squarely on the execution of EchoPark. Group 1's steady and profitable approach makes it the more compelling choice for a risk-conscious investor.
Based on industry classification and performance score:
Sonic Automotive operates a two-part business: a stable, luxury-focused franchised dealership network and a struggling used-car superstore chain, EchoPark. The traditional dealership business possesses a moderate moat, protected by exclusive franchise agreements and profitable, recurring service revenue. However, the company's overall strength is significantly undermined by the performance of its EchoPark segment, which faces intense competition and appears to lack a competitive edge in key operations like vehicle sourcing and reconditioning. The investor takeaway is mixed; while the core franchised business provides a solid foundation, the significant risks and ongoing struggles of the EchoPark growth initiative cast a shadow over the company's long-term competitive standing.
While the company has diverse sourcing channels, significant performance issues in its used-car segment suggest it lacks a competitive advantage in acquiring inventory efficiently.
Effective inventory sourcing is the lifeblood of an auto retailer, and Sonic's performance here appears mixed at best. The franchised dealerships benefit from a reliable stream of desirable trade-in vehicles, which is a structural advantage. However, the EchoPark segment, which relies heavily on purchasing 1- to 4-year-old vehicles directly from consumers and auctions, has struggled immensely, as shown by its nearly 13% revenue decline. This suggests the company has not yet developed a cost-effective sourcing model at scale to compete with used-car leaders like CarMax. Without a clear advantage in acquiring vehicles at a lower cost than rivals, it is nearly impossible to maintain a price-leader strategy profitably. Because the success of the company's primary growth initiative (EchoPark) hinges on superior sourcing, and the results indicate significant weakness in this area, this factor is a clear vulnerability.
Sonic's focused strategy of operating a dense network of luxury-brand dealerships in major metropolitan areas creates operational efficiencies and targets a profitable market segment, despite higher cyclical risks.
Sonic's strategy is heavily defined by its brand mix and geographic concentration. Approximately 90% of its franchised revenue comes from luxury and premium import brands, a much higher concentration than most public peers. Its dealerships are clustered in major metropolitan statistical areas (MSAs), creating local density that allows for efficiencies in marketing, logistics, and inventory management. This deliberate focus on the premium market allows for higher average selling prices and stronger gross profits per vehicle. While this strategy makes Sonic more vulnerable to economic downturns that disproportionately affect luxury goods spending, it is a clear and coherent approach that has historically served the company well. The brand strength and market density form a key part of its competitive identity and business model.
The company's service and parts business provides a resilient, high-margin revenue stream that covers a substantial portion of overhead costs, though it falls short of the top-tier industry benchmark.
Fixed operations, which include service, parts, and collision repair, are a vital source of stability for Sonic. This segment's gross profit covered 88% of the company's fixed overhead expenses, a metric known as the service absorption rate. This rate indicates how well the recurring, high-margin service business can support the dealership's entire cost structure, even if vehicle sales were to stop completely. While Sonic's 88% absorption rate is solid and likely slightly ABOVE the sub-industry average of around 80-85%, it is not yet at the 100%+ level that signifies best-in-class operational resilience. Nonetheless, this strong performance in fixed operations provides a significant buffer against sales cyclicality and is a core strength of its franchised business model, justifying a passing grade.
The company generates strong, above-average profits from finance and insurance products on each vehicle sold in its franchised dealerships, providing a crucial and stable high-margin income stream.
Sonic Automotive demonstrates a solid performance in its Finance and Insurance (F&I) operations, which is a critical profit center for any auto dealer. In its franchised dealerships, the company generated a gross profit of $2,437 per retail unit sold in early 2024. This figure is a key indicator of the company's ability to sell high-margin add-on products like extended service contracts, vehicle financing, and GAP insurance. This performance is considered strong, standing ABOVE the sub-industry average which typically ranges between $2,100 and $2,300 per unit. This consistent, high-margin revenue stream helps insulate the company's overall profitability from the notoriously thin margins on new vehicle sales and the volatility of the used vehicle market. While the F&I profit per unit at its EchoPark stores is lower (around $1,787), the strength in the core franchised business confirms that F&I is a well-managed and resilient part of Sonic's business model.
Persistent unprofitability and declining sales at the EchoPark used-car chain strongly suggest the company has operational inefficiencies in its vehicle reconditioning process.
Fast and cost-effective reconditioning is non-negotiable for a scaled used-car retailer, and evidence suggests this is a significant weakness for Sonic's EchoPark segment. Reconditioning involves preparing a used vehicle for sale, including repairs, cleaning, and cosmetic work. High costs or slow cycle times in this process directly erode profitability and delay how quickly a car can be sold. While Sonic does not disclose specific metrics like reconditioning cost per unit or cycle time, the ongoing financial struggles and negative growth of EchoPark serve as strong circumstantial evidence of operational shortcomings. Competitors like CarMax have built their entire model on ruthlessly efficient, standardized reconditioning. Sonic's inability to make EchoPark consistently profitable implies it has not yet cracked this code, putting it at a severe competitive disadvantage in the low-margin, high-volume used car business.
Sonic Automotive's current financial health is mixed. The company has shown recent profitability with a net income of $46.8 million and strong free cash flow of $236.8 million in the latest quarter. However, this positive short-term performance is overshadowed by a very risky balance sheet, burdened by high total debt of $4.16 billion and extremely low cash reserves. While recent operations are generating cash, the company's high leverage makes it vulnerable to economic shifts. The investor takeaway is mixed, leaning negative due to the significant balance sheet risks.
The company's inventory turnover is slightly below the industry average, suggesting its inventory management is less efficient than its peers.
Efficiency in managing working capital, particularly inventory, is critical for auto dealers. Sonic's inventory turnover currently stands at 6.45, which is slightly weak compared to a typical industry benchmark of 7.0x. This means Sonic's inventory sits on its lots for a longer period before being sold, which can tie up cash and increase the risk of vehicle value depreciation. While the company generated strong operating cash flow of $167.9 million in the last quarter, partly by reducing its inventory level of $2.06 billion, the underlying slower turnover rate points to a competitive disadvantage. More efficient peers can convert their inventory to cash faster, reducing costs and improving capital returns.
While recent cash flow has been very strong, the company's negative free cash flow for the last full year points to significant inconsistency, making its performance unreliable.
The company presents a mixed and inconsistent picture of returns and cash generation. On the positive side, its return on equity (ROE) of 17.84% is currently strong, surpassing an industry average of around 15%. Furthermore, free cash flow (FCF) was exceptionally strong in the last quarter at $236.8 million, yielding an FCF margin of 5.96%, well above a peer average of 2.0%. However, this strength is recent and contradicts the performance over the last full year, where the company reported a negative FCF of -$59.1 million. This volatility suggests that the recent strong cash generation may not be sustainable and could be the result of short-term working capital changes rather than a fundamental improvement in the business, making it an unreliable indicator of long-term health.
Sonic's gross margin is stable and in line with industry standards, indicating consistent pricing power and sourcing discipline.
The company's ability to generate profit from vehicle sales appears stable and competitive. Its gross margin in the most recent quarter was 15.49%, very close to its annual figure of 15.42% and in line with the industry benchmark of approximately 16.0%. While data on gross profit per unit (GPU) is not available, the stable gross margin suggests the company is effectively managing its vehicle acquisition costs and retail pricing in a competitive market. This consistency is a foundational strength, as it shows the core business of buying and selling cars is performing as expected relative to its peers. It is not outperforming, but it is holding its ground.
The company's operating margin is thin and trails the industry average, suggesting weaker cost control and efficiency.
Sonic's operational efficiency appears to be a point of weakness. In the latest quarter, its Selling, General & Administrative (SG&A) expenses were 11.36% of revenue ($451.6 million in SG&A on $3974 million in revenue). This is slightly higher than a typical industry benchmark of 10.0%, indicating that its overhead costs are elevated compared to peers. This translates directly to weaker profitability, with an operating margin of 3.09%. This figure is below the industry average, which often stands closer to 4.0%. A lower operating margin means the company is less effective at converting sales into profit, making it more vulnerable to competitive pricing pressure or rising costs.
The company's leverage is significantly higher and its ability to cover interest payments is weaker than industry peers, indicating a high-risk balance sheet.
Sonic Automotive operates with a very high degree of financial leverage, which poses a significant risk to investors. The company's latest debt-to-EBITDA ratio is 5.89, which is substantially above a typical industry benchmark of around 3.0x. This means the company's debt is nearly six times its annual earnings before interest, taxes, depreciation, and amortization, suggesting a heavy burden. Furthermore, its ability to service this debt is weak. In the most recent quarter, operating income of $122.7 million covered interest expense of $51.4 million only 2.39 times. This is well below the healthier industry average of around 4.0x, leaving little room for error if earnings decline. The total debt load of $4.16 billion is a major concern that limits financial flexibility.
Sonic Automotive's past performance presents a mixed and risky picture for investors. The company achieved impressive revenue growth over the last five years, expanding sales from $9.8 billion to over $14.2 billion. It also aggressively returned capital to shareholders through consistent dividend increases and significant share buybacks, reducing share count by over 20%. However, this growth has been fueled by a substantial increase in debt, which has risen nearly 70% to $4.1 billion. More concerningly, profitability has been volatile, and free cash flow turned negative in the last two years, raising questions about the sustainability of its shareholder returns. The investor takeaway is negative, as the company's aggressive financial strategy appears disconnected from its weakening underlying cash generation.
Total shareholder return has been positive but volatile and underwhelming in recent years, reflecting the market's concern over the company's rising debt and deteriorating cash flow.
The company's total shareholder return (TSR) profile has been inconsistent. While it delivered positive returns in most of the last five years, including 10.53% in FY2022 and 11.71% in FY2023, the performance has been choppy, with a negative return in FY2021 (-0.87%) and a modest 4.51% in FY2024. This volatility, combined with a Beta of 0.9, suggests the stock's returns have not adequately compensated investors for the significant fundamental risks the company has taken on, such as increasing its total debt by nearly 70% and seeing its free cash flow turn negative. The market appears to be pricing in these risks, leading to lackluster returns that do not reflect a strong vote of confidence in the company's strategy.
After a period of strong performance, operating cash flow has become volatile and free cash flow has been negative for the past two fiscal years, indicating a severe decline in the company's ability to generate cash.
The trend in cash flow is a major weakness in Sonic's historical performance. While the company generated robust operating cash flow (OCF) between FY2020 and FY2022, performance has since deteriorated sharply. OCF fell to a negative -$15.7 million in FY2023 before a modest recovery to $109.2 million in FY2024, a figure still well below earlier levels. The situation is worse for free cash flow (FCF), which turned negative in both FY2023 (-$219.3 million) and FY2024 (-$59.1 million). This negative FCF means the business is not generating enough cash to fund its operations and investments. This trend signals poor earnings quality, as reported net income is not being converted into actual cash, a significant red flag for investors.
The company has aggressively returned capital via buybacks and dividends, but funding these with rising debt and negative free cash flow in recent years represents a high-risk, undisciplined strategy.
Sonic Automotive's capital allocation history reveals a focus on shareholder returns that appears disconnected from its underlying financial performance. On paper, the strategy looks shareholder-friendly: shares outstanding were reduced from 43 million in FY2020 to 34 million in FY2024, and the dividend per share more than tripled from $0.40 to $1.25. However, this was accomplished by taking on significant debt, with total debt increasing from $2.45 billion to $4.13 billion over the same period. In the last two years (FY2023-2024), the company spent a combined $212 million on buybacks and $80.8 million on dividends while its cumulative free cash flow was negative -$278.4 million. Funding shareholder returns with debt instead of internally generated cash is an unsustainable and risky approach that prioritizes short-term stock benefits over long-term balance sheet health.
Both gross and operating margins have been declining over the past two years after peaking in FY2022, suggesting the company is losing pricing power or struggling with cost control.
Sonic's margins have shown instability and a clear downward trend in the last couple of years. The company's operating margin, a key indicator of core profitability, peaked at 4.53% in FY2022. Since then, it has steadily declined, falling to 3.44% in FY2023 and further to 3.33% in FY2024. Similarly, gross margin peaked at 16.55% in FY2022 and has since eroded to 15.42%. This consistent margin compression indicates that the company is struggling in the current market environment, potentially due to increased competition, higher costs for inventory, or an inability to pass price increases to consumers. For a dealership, stable or growing margins are crucial, and this negative trend points to a weakening competitive position.
The company demonstrated strong revenue growth over the last five years, but this momentum has slowed considerably recently, with sales declining in the latest fiscal year.
Sonic Automotive has a strong long-term revenue growth record, but its recent performance shows clear signs of deceleration. Over the five-year period from FY2020 to FY2024, revenue grew from $9.8 billion to $14.2 billion, an average annual growth rate of approximately 7%, aided by a powerful 26.9% surge in FY2021. However, the momentum has faded. The average growth over the past three years was a lower 4.9%, and in the most recent fiscal year (FY2024), revenue contracted by -1.03%. While the long-term growth is a positive, the recent slowdown and negative growth are concerning and suggest that the company's expansion phase may be stalling. This factor earns a pass based on the strength of its multi-year expansion, but the recent trend is a key risk to monitor.
Sonic Automotive's future growth outlook is decidedly mixed and carries significant risk. The company's stable franchised dealerships, particularly its profitable service and F&I operations, offer a foundation for modest, reliable growth. However, this stability is overshadowed by the profound struggles of its EchoPark used-car segment, which was intended to be the primary growth engine but is now shrinking and unprofitable. While competitors like Lithia Motors pursue aggressive acquisition-led growth, Sonic is preoccupied with a difficult turnaround. The investor takeaway is negative, as the failure of its key growth strategy creates substantial uncertainty about its ability to generate meaningful shareholder value over the next 3-5 years.
Sonic excels at selling high-margin Finance and Insurance products, generating above-average profit per vehicle and providing a stable and reliable source of earnings growth.
Finance & Insurance (F&I) is a significant strength and a key growth driver for Sonic. The company's franchised dealerships generate an impressive F&I gross profit of approximately $2,437 per retail vehicle sold. This figure is comfortably above the industry average, which typically hovers around $2,100 - $2,300. This demonstrates a strong, repeatable process for selling valuable add-ons like extended service contracts and financing. This high-margin revenue stream is less volatile than vehicle sales and provides a consistent source of profit that can be reinvested into the business. Given its proven ability to outperform in this critical area, this factor represents a clear and positive component of Sonic's future growth profile.
Expanding its high-margin fixed operations represents Sonic's most credible and lowest-risk pathway to future earnings growth, leveraging a stable and resilient part of its business.
Growing the service and parts business (fixed operations) is a core strategy for the most successful dealership groups, and it represents a major growth opportunity for Sonic. This segment is highly profitable and less cyclical than vehicle sales. Growth is achieved by adding service bays and collision centers to increase capacity and throughput. While specific guidance on bay expansion is not always provided, management consistently highlights fixed operations as a strategic priority for capital investment. Given the recurring demand for service, particularly for the complex luxury vehicles Sonic specializes in, investing in service capacity offers a clear and predictable return. This is the company's most reliable avenue for future growth.
Sonic's overall footprint is shrinking due to the closure of EchoPark stores, and its acquisition activity for franchised dealerships has been less aggressive than key competitors, signaling a challenged growth outlook from expansion.
Future growth for dealership groups often comes from acquiring other stores or opening new ones. Sonic's strategy here is deeply troubled. The company is actively reducing its store count by closing unprofitable EchoPark locations, resulting in negative net store growth. On the franchised dealership side, while the industry is consolidating, Sonic has not been a leading acquirer, falling behind more aggressive peers like Lithia Motors. The significant capital and management attention required to fix EchoPark likely constrains Sonic's ability to pursue major acquisitions. This lack of a clear expansion pipeline for its core business, combined with the contraction of its used-car segment, points to a weak growth profile from footprint expansion.
Sonic has a minimal focus on commercial and fleet sales, leaving it underexposed to a potentially valuable and diversifying revenue stream that competitors often leverage.
Unlike some of its larger peers that have dedicated B2B and fleet sales divisions, Sonic Automotive is primarily a retail-focused operator. The company does not break out commercial sales figures, suggesting this channel is not a strategic priority. This represents a missed opportunity for growth and diversification. B2B channels, such as sales to rental car companies, government agencies, and corporate fleets, provide high-volume, predictable demand that can help offset the cyclicality of the consumer retail market. By not developing this channel, Sonic is ceding ground to competitors and remains more vulnerable to swings in retail consumer sentiment, justifying a failing grade for this growth vector.
The company's primary digital and omnichannel initiative, EchoPark, has failed to gain traction and is now undergoing a significant strategic retreat, indicating a weak competitive position in online retail.
Sonic's bet on a modern, omnichannel car buying experience was its EchoPark segment. However, after years of investment, the segment has struggled to compete, evidenced by a 12.6% revenue decline in the most recent fiscal year and a strategic decision to close stores and shrink its geographic footprint. This retreat signals a failure to build a scalable and profitable e-commerce model that can challenge digital-native players like Carvana or the well-integrated systems of CarMax. While the core franchised business has digital tools, the company has not demonstrated a clear lead or advantage in converting online traffic into sales at a superior rate. The struggles of its flagship digital initiative warrant a failing grade.
As of December 26, 2025, with a closing price of $64.33, Sonic Automotive, Inc. appears to be undervalued. The stock is currently trading in the lower half of its 52-week range of $52.00 to $89.62, suggesting tempered market sentiment despite some signs of fundamental value. Key metrics supporting this view include a low forward P/E ratio of approximately 10.5x and an attractive dividend yield of 2.36%. However, this potential undervaluation is weighed down by significant risks, including a highly leveraged balance sheet and inconsistent historical cash flow generation. The takeaway for investors is cautiously optimistic; the stock seems cheap, but the underlying business carries considerable financial risk that cannot be ignored.
The EV/EBITDA multiple is not low enough to compensate for the company's higher-than-average financial leverage and operational risks compared to peers.
Enterprise Value to EBITDA (EV/EBITDA) is a crucial metric in this industry because it accounts for debt. Sonic’s Enterprise Value is $6.09 billion ($2.19B Market Cap + $4.16B Debt - $0.26B Cash). With TTM EBITDA around $149.4 million quarterly (or ~$600M annualized), the EV/EBITDA multiple is around 10x. This is not a bargain, especially when compared to more efficient and less indebted peers who trade in a similar or lower range. The high enterprise value is driven by the massive $4.16 billion in total debt. For the multiple to be attractive, it would need to be significantly lower to offer a sufficient margin of safety for the associated balance sheet risk.
While the dividend yield is attractive, the company's history of funding shareholder returns with debt during periods of negative free cash flow makes the payout policy unsustainable and risky.
Sonic offers a 2.36% dividend yield and has a history of meaningful share buybacks. On paper, this is a strong return of capital to shareholders. However, the PastPerformance analysis revealed a critical flaw: these returns have not always been funded by internally generated cash. In recent years when FCF was negative, the company took on more debt to pay dividends and buy back stock. This is a financially precarious strategy that prioritizes short-term shareholder appeasement over long-term balance sheet health. A sustainable and valuable return policy must be comfortably covered by free cash flow, which has not consistently been the case for Sonic.
Despite a very high recent free cash flow yield, the figure is inflated by temporary factors and masks a history of inconsistent and even negative cash generation, making it an unreliable indicator of value.
On the surface, a trailing twelve months (TTM) Operating Cash Flow of $588.2 million against a $2.2 billion market cap suggests a phenomenal yield. However, the FinancialStatementAnalysis section correctly identified this as an anomaly driven by working capital adjustments. The company's FCF for the last full fiscal year was negative, and its history is volatile. A true "Pass" for this factor requires durable and predictable cash flow. Because Sonic's recent surge in FCF appears unsustainable and contradicts its longer-term trend, the high yield is more of a statistical illusion than a genuine sign of deep value.
The high P/B ratio is not justified by the company's weak balance sheet, which is burdened by excessive debt.
Sonic's Price-to-Book (P/B) ratio of 2.05x is substantial for an auto dealer. While a strong Return on Equity (ROE) of 12.51% might typically support such a multiple, it is undermined by the extreme financial risk on the balance sheet. Prior analysis highlighted a dangerously high Net Debt/EBITDA ratio of nearly 5.9x and a very low interest coverage ratio. This level of leverage makes the book value of equity highly vulnerable to any downturn in business performance. A "Pass" would require a much stronger balance sheet or a significantly lower P/B ratio to compensate for the financial risk.
The forward Price-to-Earnings ratio is low, suggesting the stock is cheap if the company achieves its expected earnings recovery.
Sonic’s trailing P/E ratio of 17.3x looks expensive compared to its historical average of around 7x-10x. However, the market is forward-looking. The forward P/E ratio, based on next year's earnings estimates, is a much more reasonable 10.5x. This is in line with the auto retail sector, which typically trades at low multiples. The FutureGrowth analysis projects a robust EPS CAGR of 15-20% in the near term. If this growth materializes, the current price will seem low in hindsight. This factor passes because the forward multiple appears to offer value, though it is heavily dependent on management executing its turnaround plan.
The auto retail industry is highly cyclical, and Sonic Automotive is directly exposed to macroeconomic challenges. Persistently high interest rates pose a significant threat by making auto loans more expensive for consumers, which directly suppresses demand for both new and used vehicles. Furthermore, higher rates increase Sonic's own borrowing costs for its vast inventory, a practice known as floor plan financing, which can squeeze profit margins. A broader economic slowdown or recession would likely lead to job losses and reduced consumer confidence, causing potential buyers to delay large purchases like cars and further pressuring sales volumes and revenue.
Beyond the economic climate, Sonic operates in a fiercely competitive landscape. Its EchoPark segment, designed to be a major growth engine, competes directly with established giants like CarMax and online disruptors like Carvana, making market share gains difficult and costly. The used vehicle market itself is a source of risk; after a period of unusually high prices, a sharp correction or "normalization" could devalue the company's large inventory, leading to significant write-downs and lower gross profits. Looking further ahead, the structural shift to electric vehicles (EVs) and the potential for auto manufacturers to adopt direct-to-consumer sales models, bypassing dealers entirely, represent a fundamental long-term threat to Sonic's core business model.
From a company-specific perspective, Sonic's strategic execution and financial health are key areas to watch. The company carries a substantial amount of debt on its balance sheet, which increases financial risk, especially during an economic downturn when cash flows could weaken. Much of the company's growth narrative has been built around the expansion of EchoPark, but this segment has a history of unprofitability and has required significant capital investment. The ability to transform EchoPark into a consistent and meaningful contributor to the bottom line remains a critical uncertainty. Failure to execute on this strategy could weigh heavily on the company's future earnings and stock performance.
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