After falling 40%, is there a value opportunity in this once-great FTSE 100 stock?
Investors tracking Auto Trader Group (LSE:AUTO) may have noticed the stock frequently appearing on lists of “beaten-up FTSE 100 growth stocks.” Shares have declined roughly 40% from their 52-week peak of 828.8p to approximately 505p—a level of depreciation that typically captures the interest of value-oriented investors.
On the surface, it appears to be the type of high-quality firm that the market has penalized unfairly. However, does that necessarily mean it is a bargain?
Why it still looks like a quality following the decline. For a cyclical, advertising-dependent company like this, I prefer to see either a much deeper discount or clearer evidence that the cycle has bottomed out.
Currently, I see neither, and there is no immediate indication that the current price represents a floor. Should the recovery of the car market stall, or if operating costs climb, margins could come under pressure and lead to disappointing <a obvious" bargains following significant drops—such as JD Sports or Entain—have demonstrated how easily a cheap stock can become cheaper when consumer demand falters.
To confirm a recovery, I would want to see at least two consecutive quarters of sustained improvement in UK consumer demand and dealer advertising expenditure. A lower valuation would also offer a genuine margin of safety for a cyclical recovery play.
Until then, Auto Trader remains firmly on my watchlist rather than in my portfolio.
A strong business, but not an obvious buy
Auto Trader remains a high-quality business across many metrics: a dominant market position, solid profitability, and a 60% ROE. A recovery certainly appears possible if the automotive market stabilizes.
