Lithia has gotten torched over the last six months - since September 2025, its stock price has dropped 22.2% to $245.79 per share. This might have investors contemplating their next move.
Is there a buying opportunity in Lithia, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Lithia Not Exciting?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons we avoid LAD and a stock we'd rather own.
1. Flat Same-Store Sales Indicate Weak Demand
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).
Lithia’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat.
2. Low Gross Margin Reveals Weak Structural Profitability
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.
Lithia 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 15.4% gross margin over the last two years. That means Lithia paid its suppliers a lot of money ($84.59 for every $100 in revenue) to run its business. 
3. High Debt Levels Increase Risk
Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.
Lithia’s $15.48 billion of debt exceeds the $341.8 million of cash on its balance sheet. Furthermore, its 8× net-debt-to-EBITDA ratio (based on its EBITDA of $1.87 billion over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Lithia could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope Lithia can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
Lithia’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 7.1× forward P/E (or $245.79 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better investments elsewhere. We’d suggest looking at one of our top software and edge computing picks.
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