Penske Automotive Group (PAG): Buy, Sell, or Hold Post Q3 Earnings?

What Happened?

A number of stocks fell in the afternoon session after the Dow Jones Industrial Average fell as much as 0.7%, reflecting lingering uncertainty, and capping off a volatile week which saw stocks enjoy some relief as President Donald Trump reduced tensions with European allies by backing off his threat of imposing new tariffs. 

Threats of tariffs initially created uncertainty for businesses, as they can lead to higher costs for multinational corporations and disrupt global supply chains. By withdrawing the threat, the administration removed a significant headwind for the market, prompting a relief rally. This development was a key factor in helping major indexes recover from earlier losses, even as some analysts noted that underlying geopolitical risks and market volatility remain concerns for investors.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Apparel Retailer company Tilly's fell 2.9%. Is now the time to buy Tilly's? Access our full analysis report here, it’s free.
• Vehicle Retailer company Penske Automotive Group fell 2.9%. Is now the time to buy Penske Automotive Group? Access our full analysis report here, it’s free.
• Vehicle Retailer company CarMax fell 3.1%. Is now the time to buy CarMax? Access our full analysis report here, it’s free.
• Grocery Store company Grocery Outlet fell 1.7%. Is now the time to buy Grocery Outlet? Access our full analysis report here, it’s free.

Zooming In On CarMax (KMX)

CarMax’s shares are somewhat volatile and have had 13 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 4 months ago when the stock dropped 23.4% on the news that the company reported third-quarter 2025 results that significantly missed Wall Street's expectations. 

The company posted earnings of $0.64 per share, which fell far short of the anticipated $1.03 per share and marked a 24.7% drop from the previous year. Revenue also disappointed, coming in at $6.59 billion, below the consensus estimate of $7.07 billion and representing a 6% decrease year-over-year. The poor performance was driven by weakening demand, as same-store sales fell 7.1%. Adding to concerns, profitability worsened, with the operating margin declining to 1.8% from 2.9% in the same quarter last year.

CarMax is up 18% since the beginning of the year, but at $46.35 per share, it is still trading 48% below its 52-week high of $89.19 from February 2025. Investors who bought $1,000 worth of CarMax’s shares 5 years ago would now be looking at an investment worth $383.18.

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.

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.