The past month has been an uninspiring one for the footsie, with a 4% fall in the headline FTSE 100 index. However, there are definite silver linings there, in that high-quality shares are now available at some discount.
One of these is the online classified advertisements provider Auto Trader (LSE: AUTO). From the start of September to time of writing, its share price has declined by 4.5%. At its present level, the share price is almost 17% lower than the highest level seen over the past year. And if that isn’t a sign to consider investing in an otherwise quality share, I don’t know what is! The company has a great deal going for it in terms of healthy financials as well as future prospects.
Consistently good financials
Auto Trader’s annual results, released in June, showed good revenue and profit growth, which is a worthwhile reason to start considering the share’s investment potential. But it’s the company’s longer-term performance that I think will really capture the interest of investors from the Warren Buffett school of thought. Over the past few years, it has consistently seen an improvement in financials. In other words, the latest good performance is far from being just a flash in the pan.
Its outlook is positive as well, with expectations of another year of strong growth. I like that it explicitly mentions its own Brexit-proof nature in the result update. It doesn’t see any particular disruptions to its business from a potential detachment from the EU. This is a highlight, given the extent to which some of the other sectors have had to prepare for Brexit.
Consider for instance, Next retail, which I wrote about a few days ago in this context. It released an entire Brexit preparation and analysis report last year, and followed up with an updated version earlier in September, underlining the significance of well-managed customs’ procedures and long-term tariffs to its business.
So far, so good.
Risks to consider
This isn’t to say that Auto Trader is risk free. The automotive sector, like all consumer discretionary segments, is cyclical. This means it’s subject to highs and lows that some of the other sectors like healthcare and utilities can avoid.
As prospects of global economic growth appear less certain in the near future with the US and China locked in an economic conflict and continued questions around Brexit, the company could definitely be impacted. But we at the Motley Fool are most interested in long-term prospects and from that perspective, it still appears viable.
I am a bit uncomfortable about its high price-to-earnings (P/E) ratio, which currently sits at 24.3 times (twelve months trailing). But this is when its price is at just about the average levels seen in the past year. Given its profile, I reckon there’s more upside to the share than not, making it still investment worthy.
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Manika Premsingh has no 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.