The mid-market broker said the stock could be considered cheap if the group can achieve some fairly punchy targets for 2025 profitability.
“But that is a big if,” Liberum said, striking a cautious note.
“Implementing the ambitious change and improvement plans in volatile and unpredictable markets is unlikely to support a straight-line earnings trajectory,” it added.
“Operational gearing is high, but the balance sheet is okay. Management has done a good job navigating Pendragon through Covid without raising money. An impending refinancing will be key.”
Last week the owner of the Stratstone and Car Store chains saw a modest narrowing of its losses in the first half and reported it had been profitable in July and August as it counted the costs of the pandemic.
Pendragon had already announced plans to cut 1,800 jobs and close 15 loss-making showrooms to counter the impact of Covid on its finances.
The shares were changing hands for 8.6p each late morning. Liberum thinks they are worth 8p.
Read More: Pendragon PLC shares motor ahead after Liberum upgrade