AutoNation Stock Accelerated in 2021, But What's Next?

Why AN may run out of fuel in the coming years

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The shares of automotive retailer AutoNation, Inc. (NYSE:AN) are up 1.7% to trade at $112.76 at last check. The security has been cooling off from its Oct. 25, all-time high of $133.43 in recent weeks, though, and last week logged its first close below the formerly supportive 120-day moving average since July 2020. Year-over-year, AN remains up 69.1%.

AN 120 Day

The brokerage bunch is skeptical of AutoNation stock. Of the eight analysts in question, six carry a tepid "hold" rating, while only two say "strong buy." Meanwhile, the 12-month consensus target price of $156.13 is a 38.4% premium to current levels, indicating the equity may be overdue for a round of price-target cuts.

It's also worth noting that while short interest has fallen 11.5% over the two most recent reporting periods, the shares have failed to experience a jump on the charts, pointing to potential technical weakness. The 4.68 million shares sold short now make up 9.6% of the stock's available float.

The options pits lean bearish, too. This is per AN's Schaeffer's put/call open interest ratio (SOIR) of 1.17, which sits higher than 83% of readings in its annual range. This means near-term put open interest outweighs call open interest by a wider-than-usual margin. 

AutoNation stock has an incredibly intriguing valuation, with a price-earnings ratio of 8.00, as well as a price-sales ratio of 0.39. Additionally, the security has a forward price-earnings ratio of 6.25, indicating an expected increase in earnings over the coming year.

AN reached these values after growing its trailing 12-month revenues and net income 23% and 198%, respectively, since 2020. However, AutoNation had previously struggled to see any sort of consistent growth. The retailer experienced three consecutive years of revenues declines between 2017 and 2020. 

AN also experienced a 9% decrease in net income for 2018, and a 15% drop for 2020. What's more, AutoNation has an abysmal balance sheet, with just $72 million in cash, and $4.19 billion in total debt, making it an unfavorable bet for long-term investors, despite an attractive valuation.

 

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