Over the past six months, Penske Automotive Group’s shares (currently trading at $163.28) have posted a disappointing 5.8% loss, well below the S&P 500’s 8.1% gain. This might have investors contemplating their next move.

Is now the time to buy Penske Automotive Group, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is Penske Automotive Group Not Exciting?

Even with the cheaper entry price, we're swiping left on Penske Automotive Group for now. Here are three reasons why PAG doesn't excite us and a stock we'd rather own.

1. Same-Store Sales Falling Behind Peers

Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Penske Automotive Group’s demand within its existing locations has been relatively stable over the last two years but was below most retailers. On average, the company’s same-store sales have grown by 1.4% per year.

2. Low Gross Margin Reveals Weak Structural Profitability

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Penske Automotive Group has bad unit economics for a retailer, signaling it operates in a competitive market and lacks pricing power because its inventory is sold in many places. As you can see below, it averaged a 16.5% gross margin over the last two years. Said differently, Penske Automotive Group had to pay a chunky $83.50 to its suppliers for every $100 in revenue.

3. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Penske Automotive Group, its EPS declined by 8.8% annually over the last three years while its revenue grew by 4.2%. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

Penske Automotive Group isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 12.4× forward P/E (or $163.28 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at the most entrenched endpoint security platform on the market.

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