Investment Thesis
Sonic Automotive faces severe operational deterioration with net income down 45% YoY despite 6.5% revenue growth, indicating dangerous margin compression and cost pressures. Critical liquidity constraints (5.7M cash, 0.29x quick ratio) combined with 1.76x debt-to-equity leverage and negative free cash flow present substantial financial distress risk.
Strengths
- Revenue growth of 6.5% YoY demonstrates ongoing market demand in automotive retail
- Strong interest coverage ratio of 265.4x indicates current debt servicing capacity
- Gross margin of 16.2% is reasonable for competitive retail automotive sector
Risks
- Net income collapsed 45% YoY while revenue grew only 6.5%, signaling severe operating margin compression and potential one-time charges
- Dangerously low liquidity: only 5.7M cash with 1.03x current ratio and 0.29x quick ratio indicate short-term funding stress
- Negative free cash flow of -1.5M combined with 1.76x debt-to-equity ratio creates refinancing and covenant compliance risk
- Microscopic net margin of 1.6% and ROE of 6.2% suggest business is destroying shareholder value
Key Metrics to Watch
- Operating margin trend and net income recovery in next two quarters
- Free cash flow generation and total cash balance trajectory
- Debt covenant compliance and refinancing ability given deteriorating profitability
Financial Metrics
Revenue
3.7B
Net Income
60.8M
EPS (Diluted)
$1.79
Free Cash Flow
-1.5M
Total Assets
6.1B
Cash
5.7M
Profitability Ratios
Gross Margin
16.2%
Operating Margin
3.6%
Net Margin
1.6%
ROE
6.2%
ROA
1.0%
FCF Margin
0.0%
Balance Sheet & Liquidity
Current Ratio
1.03x
Quick Ratio
0.29x
Debt/Equity
1.76x
Debt/Assets
0.0%
Interest Coverage
265.40x
Long-term Debt
1.7B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-06T18:49:36.105128 |
Data as of: 2026-03-31 |
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