Auto Trader emerged as the star performer on the London Stock Exchange (LSE) last week. According to Saxo Markets, the online car sales company’s share price was up 11.29%, making it the best performing stock of the week.
We tell you why Auto Trader shares are rising and whether you should consider investing in the company.
What is Auto Trader?
Auto Trader is the UK’s largest online automotive marketplace for new and used cars. It features cars sold by both private sellers and trade dealers.
The company is listed on the London Stock Exchange and is also part of the FTSE 100, which is a list of the top 100 largest companies in the UK in terms of market capitalisation.
On the LSE, Auto Trader trades under the ticker symbol ‘AUTO’.
Why are its shares rising?
The star performance of Auto Trader on the LSE last week comes on the back of strong data from the used car market.
According to the Financial Times, there has been a significant increase in the demand for used cars recently. This is due to two main factors:
- The coronavirus pandemic. The pandemic has impacted the used car market in several ways. For example, commuters who have been working from home have saved a lot of money that they are now using to buy cars. Furthermore, due to Covid-19 fears, many commuters are avoiding public transportation and instead turning to dealers’ forecourts and online car sales platforms.
- A shortage of semiconductor chips. This has led to a shortage of new cars. As a result, buyers who can’t get the new car they want are turning to the used car market instead.
The increased demand for used cars, combined with the dwindling supply, has resulted in skyrocketing used car prices.
This trend has resulted in increased investor confidence in the sector. Ultimately, the main beneficiaries have been companies like Auto Trader, whose share prices are now rising.
Interestingly, Auto Trader recently released its yearly financials for the fiscal year ending 31 March. They showed a 29% drop in revenue and a 37% drop in pre-tax profits.
However, the company is optimistic about the future in light of the increase in used car sales and the fact that more people are now purchasing cars online.
Should I buy Auto Trader shares?
This is, of course, a personal decision.
As previously stated, investor sentiment in the used car market is currently positive due to the imbalance between supply and demand that has caused prices to skyrocket.
Having said that, no one knows how long this imbalance will last. We also don’t know what effect the Covid-19 pandemic will have on the used car market in the future.
As an investor, it’s always important to do your research before you put your money into any company or sector. Whether it’s Auto Trader or any other company in the used car space, consider first how the investment fits into your overall investment strategy.
If you do decide to take the plunge, consider investing through a tax-efficient vehicle like Saxo Markets’ stocks and shares ISA. This is a tax-free wrapper that shields your investment from both income and capital gains tax.
Keep in mind, however, that tax rules can change and that tax treatment will depend on your individual circumstances.