Auto Trader could be a monster stock in the making 

With new car shortages on the cards and news reports of soaring demand for electric cars, is Auto Trader one to watch?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Typical street lined with terraced houses and parked cars

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

Auto Trader (LSE: AUTO) had a tough pandemic. 2020 saw the share price plummet from around 590p to 380p as lockdown hit – a fall of nearly 35%. But its recovery has since been strong, thanks in part to pent up demand for cars. The Auto Trader share price hit a five-year high of 660p in July, and is now sitting at 590p. Could this be a monster stock in the making? 

Energy crisis

It’s not just the share price movements that have caught my eye, its Auto Trader’s long-term prospects. 

Firstly, the energy crisis could spell a big opportunity for Auto Trader. I recently read that it takes almost a tonne of steel to make a new car. High energy prices are making steel production so unaffordable that plants are at risk of shut-down, meaning production of new cars could grind to a halt. 

Almost 90% of the cars traded on Auto Trader are used. Does this have the potential to turn Auto Trader into a monster stock if new car shortages emerge? 

I’m not so sure. Can we really assume that demand for used cars will continue to soar? There were news reports about huge pent up demand in the spring as lockdown eased. But seven months down the line, has this worked its way through?

Rate hike 

Reports also emerged last week that the Bank of England is considering raising interest rates – and that this could happen as soon as the end of the year. I suspect that this could leave consumers less willing to purchase cars on finance deals, as repayments get more expensive. These are a key offering of the Auto Trader platform, meaning that higher interest rates could hit its profitability going forward. 

Fuel shortages are still rumbling on too, rendering car travel more unpredictable. Is there too much uncertainty for customers to consider buying a new car at the moment? 

Electric future

Despite these risks, I think that Auto Trader could still be a good long-term bet, thanks to its clever positioning in the electric car market. 

Last weekend, Auto Trader announced that searches for electric vehicles hit their highest ever levels, thanks to motorway protests and fuel shortages dominating the news. 

Its website reveals a dedicated section for electric car shopping, and its Annual Report also lists the move to electric as the number one strategic priority. 

A monster stock? 

The combination of a new car shortage and higher demand for electric cars could leave Auto Trader exceptionally well placed – and its Annual Report suggests it is thinking along the same strategic lines. 

But there are clear risks too – could higher interest rates suppress car demand? And could fuel shortages reduce demand for driving all together? 

Perhaps Auto Trader is more of a cautious long-term bet for my portfolio than a monster stock. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Hermione Taylor does not have a position in any of the shares mentioned.

The Motley Fool UK has recommended Auto Trader. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

These FTSE 100 stocks are making a joke of the S&P 500 — but I’m eyeing more ‘rational’ options

Many FTSE 100 stocks are soaring ahead of their S&P 500 rivals in 2025 but Mark Hartley’s looking for some…

Read more »

Santa Clara offices of NVIDIA
Investing Articles

The Nvidia share price hit an all-time high this week. But could it still be a bargain?

The Nvidia share price has soared 1,466% in just five years. This writer reckons the best may yet be to…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

How much does someone need to invest to target a second income of £15k – or £150k?

A second income from dividend shares? It's a well-worn path -- and this writer sees some attractions to the approach.…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Could the stock market crash in the second half of 2025?

As the FTSE 100 hits a new high, could a stock market crash be coming? Our writer thinks there's a…

Read more »

Man hanging in the balance over a log at seaside in Scotland
Investing Articles

Start investing this summer with a spare £250? Here’s how!

Christopher Ruane explains how an investor with a few hundred pounds to spare and no prior experience could look to…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Is Palantir stock the new Nvidia? Why UK investors should (or shouldn’t) care

Palantir stock’s the top performer on the S&P 500 this year. Should UK investors consider it amid a blistering AI-fuelled…

Read more »

Investing Articles

3 FTSE 100 shares I think look undervalued

The FTSE 100 may be hitting record highs but there are still bargains to be had on the index. I…

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

£20,000 in savings? Here’s how to target £841 of passive income each month

Passive income plans don't need to be complicated. Our writer explains how someone could target a sizeable second income buying…

Read more »