The Motley Fool

Why I think the Auto Trader Group share price is a winner

Buying a car can be a nightmare, but thanks to technology and the people at Auto Trader (LSE: AUTO), the process of locating the perfect vehicle could not be easier. The buying part is still down to you, however.

Background, rise and competition

Founded in 1975 by John Madjeski, (who would go on to own Reading FC, if you know your football) the original platform consisted of a printed magazine circulated weekly throughout different regions. 

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By investing in new technology the website for Auto Trader arrived in 1996. 2008 saw the mobile site, before the popular mobile application became available in 2010.

Fast forward to the current day and it is estimated that approximately 80% of UK automotive dealers use Auto Trader platforms. Across its platforms there are almost 60m visits per month, with the majority of those visits coming via mobile devices. 

Since Auto Trader’s emergence, many others have attempted to gatecrash the party and steal away some market share. Car Gurus and Motors.co.uk are just two traditional platforms currently navigating the industry. 

Throw into the mix that Facebook marketplace has exploded onto the scene and the ever growing popularity of free advertisement site Gumtree, it makes for an interesting smorgasbord of options for buyers and sellers. 

Performance

When last year’s year end results were revealed, Auto Trader reported a 15% increase in pre-tax profit for the year. Pre-tax profit rose to £242.2m in the year to March 31 from £210.7m last year. Revenue increased 9% to £293m boosted by the launch of new products and higher yielding advertising packages. 

Reviewing the share price performance in the previous 12 months, Auto Trader has seen an approximately 30% increase. Impressive figures and the fact that the company expects a low double-digit increase in earnings in the coming year is a further sign of a blossoming business. 

Profits and dividend per share have increased year on year for the previous four years, which can only be a good omen. It is not a coincidence that within the last two months Goldman Sachs and UBS have upgraded Auto Trader based on “long term opportunities,” and “a more positive outlook on media.”

What to do now

Analysts at Liberium Capital calculate that Auto Trader’s market share is five times that of the next player, Gumtree, and as the leader in the market, Auto Trader “benefits from strong virtuous circle effects and very high barriers to entry.” 

Despite the ever increasing chance of an economic downturn, I feel Auto Trader possesses the ability to withstand general macroeconomic weakness and continue to flourish.

If you are looking to invest in a stock that you will hold for a long time, and you’re ready to be patient and watch it grow, then I believe Auto Trader may be for you.

A top stock with enormous growth potential

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Jabran Khan has no position in any of the shares mentioned. 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.