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Are Investors Undervaluing Lithia Motors (LAD) Right Now?

Zacks Equity Research

The proven Zacks Rank system focuses on earnings estimates and estimate revisions to find winning stocks. Nevertheless, we know that our readers all have their own perspectives, so we are always looking at the latest trends in value, growth, and momentum to find strong picks.

Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One company value investors might notice is Lithia Motors (LAD). LAD is currently sporting a Zacks Rank of #1 (Strong Buy), as well as an A grade for Value.

We also note that LAD holds a PEG ratio of 1.14. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. LAD's industry currently sports an average PEG of 1.53. Within the past year, LAD's PEG has been as high as 1.53 and as low as 0.54, with a median of 1.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. LAD has a P/S ratio of 0.25. This compares to its industry's average P/S of 0.26.

These are only a few of the key metrics included in Lithia Motors's strong Value grade, but they help show that the stock is likely undervalued right now. When factoring in the strength of its earnings outlook, LAD looks like an impressive value stock at the moment.


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