Penske Automotive Group Is A Cheap Market-Beater

Penske Automotive Group, Inc. ($PAG)

Did you know the founder of Penske Automotive Group, Roger Penske, is a former racecar driver who also won the Presidential Medal of Freedom?

Penske Automotive Group was founded in 1990. The company operates car dealerships, parts distribution networks, and holds a 28.9% stake in trucking company Penske Transportation Solutions.

Car dealerships are an interesting business model that often provides owners with a geographical moat. Many carmakers grant “Manufacturer Agreements” that give certain dealerships the exclusive right to sell a particular brand of vehicle in a specific geographic area. That probably sounds a little vague, so here’s a specific example: Ford may give a specific dealership exclusive rights to be the only authorized Ford dealer in a county or state — so if you want a new Ford truck, you’re going to buy through this particular dealership.

Because of this, some of the largest dealership chains sell an enormous number of cars each year.

In the first quarter of 2025, Penske Automotive Group sold 124,488 new and used vehicles. This translates into over $7 billion in revenue. For comparison, in 2024, pharmaceutical company Haleon, makers of Advil and Centrum multivitamins, had annual revenue of about $15 billion.

There’s big money in selling cars.

Penske Automotive Group is a market-beater. The company has a 10-year average annual total return of 15.84%. The firm is also an inflation-beater, with a 5-year compound annual dividend growth rate of 30.97%.

Best of all? Penske Automotive Group has raised its dividend every quarter for almost five years.

Despite the market-beating returns and inflation-beating dividend growth, Penske still trades at a fairly modest valuation. At the time of writing, the company is valued at a price to earnings ratio of 12.82 — fairly cheap for a company that outperforms the S&P 500.

This low valuation also gives Penske Automotive Group a relatively high starting yield of 3.02%.

With a payout ratio of just 24.98%, Penske’s dividend is safe and can continue to grow.

• Forward PE ratio of 12.82

• 3.02% starting dividend yield

• 5-year dividend CAGR of 30.97%

• Payout ratio of 24.98%

• 10-year average annual total return of 15.84%

The biggest downside to Penske Automotive Group is the fact that the company sells cars.

Cars are considered a consumer discretionary purchase and car sales are extremely dependent on the economy. So much so that Wall Street obsessively tracks car sales as a “Recession Indicator.”

This means Penske stock could be extra sensitive in a market sell-off.

Penske’s discretionary nature also means the underlying business could see a significant slowdown compared to, say, a utility company or consumer staple like Procter & Gamble.

Still, this is a cheap market-beater with a low dividend payout ratio. And, Penske Automotive Group has survived previous economic slowdowns including the dot-com bubble, 2008 financial crisis, and 2020 pandemic.