Over the last six months, Penske Automotive Group’s shares have sunk to $157.70, producing a disappointing 16.3% loss - a stark contrast to the S&P 500’s 7.2% gain. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in Penske Automotive Group, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Even though the stock has become cheaper, we don't have much confidence in Penske Automotive Group. Here are three reasons there are better opportunities than PAG and a stock we'd rather own.

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 barely increased over the last two years as its same-store sales were flat.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

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. That means Penske Automotive Group paid its suppliers a lot of money ($83.54 for every $100 in revenue) to run its business.

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 10.5% annually over the last three years while its revenue grew by 3.4%. This tells us the company became less profitable on a per-share basis as it expanded.

Penske Automotive Group falls short of our quality standards. After the recent drawdown, the stock trades at 11.8× forward P/E (or $157.70 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are better investments elsewhere. We’d suggest looking at one of our all-time favorite software stocks.

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