Is AutoNation's 32% Rally Just the Beginning?

The recent 32% surge in AutoNation's stock price has sparked renewed interest in the automotive retail giant. While short-term volatility is inevitable, a deeper analysis of the company's valuation, strategic positioning, and long-term growth drivers suggests that this rally may merely be the prelude to a more substantial re-rating. AutoNation's undervaluation relative to its industry peers, coupled with its proactive adaptation to the electric vehicle (EV) revolution and digital transformation, positions it as a compelling long-term investment.

Undervaluation: A Mispricing Amidst Industry Shifts

AutoNation's price-to-earnings (P/E) ratio of 12.4x as of October 2025 stands below the US Specialty Retail industry average of 16.7x but slightly above its immediate peer average of 11.9x according to market data. This valuation discount reflects a market that underappreciates the company's resilience and strategic reinvention. While earnings are projected to grow at 7.3% annually and revenue at 4.2%, these figures lag behind the broader US market's growth trajectory according to industry analysis. However, such comparisons overlook AutoNation's unique strengths: its after-sales business, which delivered record revenue and expanding gross margins in 2025, and its disciplined approach to inventory management.

The company's valuation also fails to fully account for its role in the EV transition. For instance, AutoNation's second-quarter 2025 results highlighted a 10% year-over-year increase in same-store gross profit, driven by a 40% rise in hybrid vehicle sales and a near-20% surge in battery electric vehicle (BEV) sales. These figures underscore AutoNation's ability to capitalize on the EV shift, a trend that is reshaping the automotive industry.

Strategic Reinvention: Digital, Finance, and Luxury Expansion

AutoNation's long-term growth hinges on its ability to adapt to evolving consumer preferences and technological disruptions. The company has invested heavily in digital transformation, including its AutoNation Express service, which streamlines customer experiences and enhances operational efficiency. Such initiatives are critical in an era where digital engagement is a key differentiator.

Simultaneously, AutoNation is expanding its luxury footprint, a segment that offers higher margins and aligns with the growing demand for premium vehicles. This strategy is complemented by strategic acquisitions, such as RepairSmith, which provides mobile repair and reconditioning services tailored to the complexities of EVs. These moves not only diversify AutoNation's revenue streams but also position it to capture value from the after-sales market, which is expected to grow as EVs require specialized maintenance.

EV Adoption: A Tailwind for Long-Term Growth

The EV market's trajectory is a pivotal factor in AutoNation's future. In Q3 2025, US EV sales reached 437,487 units, accounting for 10.5% of total vehicle sales-a record high driven by a rush to purchase before federal incentives expired. While Tesla's market share declined from 49% in Q3 2024 to 41% in Q3 2025, competitors like General Motors and Volkswagen Group gained ground, with Volkswagen's EV sales more than doubling year-over-year. This fragmentation of the EV market creates opportunities for AutoNation to partner with a broader range of automakers and expand its EV service offerings.

AutoNation's forward-looking strategy includes installing EV charging stations at 75% of its dealerships and expanding its EV inventory. These efforts align with global projections that EVs will capture 30% of total vehicle sales by 2030. Moreover, the company's after-sales business is well-positioned to benefit from the rising demand for specialized EV maintenance, a sector expected to grow as EV technology becomes more complex.

Challenges and Risks

Despite these positives, AutoNation faces headwinds. The expiration of federal tax credits and potential tariffs could dampen near-term EV adoption in the US, where J.D. Power forecasts the EV retail share to stabilize at 9.1% in 2025 before rising to 26% by 2030. Additionally, AutoNation's CEO has acknowledged the need to reduce EV inventory due to poor profit margins, signaling a cautious approach to inventory management.

However, these challenges are not insurmountable. AutoNation's focus on digital platforms, service quality, and strategic partnerships with automakers provides a buffer against short-term volatility. The company's ability to adapt its business model to the EV era-while maintaining profitability in traditional segments-suggests a resilient long-term outlook.

Conclusion: A Rally with Room to Run

AutoNation's 32% rally reflects a market beginning to recognize the company's undervaluation and strategic agility. While its current growth rates may appear modest, the interplay of EV adoption, digital transformation, and after-sales innovation creates a compelling case for long-term appreciation. As the automotive industry transitions to electrification and digital-first models, AutoNation's proactive reinvention positions it to outperform peers and justify a higher valuation. For investors with a multi-year horizon, the rally may indeed be just the beginning.