With the coronavirus outbreak affecting businesses throughout the UK, it’s difficult to determine what the best FTSE 100 shares to buy might be. Since the start of the year, we have seen several big companies collapse, proving that nothing is completely safe. If ever there was a time to be a cautious investor, it is surely now.
However, it is not all bad news. The FTSE 100 index has fallen by roughly 19% in the year-to-date. I believe this has opened up an opportunity to buy shares in some of the best UK companies.
With most garage forecourts reopened, I thought now might be the best time to examine Auto Trader (LSE: AUTO) to see if it’s worth buying the FTSE 100 company’s shares.
One of the best FTSE 100 shares to buy now?
Warren Buffett likes to buy companies with a strong competitive edge — or moat — against its rivals. I’m not going to disagree with arguably the world’s greatest investor, so it tends to be a quality I seek out in shares too. In the past, some of the best FTSE 100 shares have been those well-protected against the competition.
That’s why Auto Trader has got my attention. It’s the first place I look when I’m considering buying a car, and I’d hazard a guess and say that most other people would check its website too.
Auto Trader’s share price has dropped by approximately 10% in the year-to-date. This makes the price-to-earnings ratio of the stock 24. The shares aren’t cheap, then. But are they worth buying?
Time to buy Auto Trader shares?
It’s been a difficult year for the motor marketplace. Uncertainty surrounding Brexit and what Auto Trader calls “significant environmental and technology-driven changes to the automotive industry” have been huge hurdles for the company. And that’s before we consider the devastating effects the coronavirus outbreak has had on FTSE 100 shares.
Unsurprisingly, the closure of car showrooms had a negative effect on Auto Trader’s revenue. In fact, it stomached the blow and didn’t charge its retail customers for advertising during April and May, and offered them a 25% discount in June.
What is surprising is the level of traffic the platform is receiving. In the first three weeks of June, Auto Trader had record levels of audience, with cross-platform visits up by 28% compared with the same period last year. With coronavirus fears putting people off public transport, buying a used car might be seen as a safer alternative.
The company has proved its resilience in this crisis. To raise extra cash, the company issued new shares. This raised £183m.
In addition to the business’s resilience, investors should be excited about its margins. Once a new customer is acquired, there is little in the way of additional capital outlay. In its full-year results at the end of March, the operating profit margin was reported to be 70%, up 1% on the prior year.
With the decline in its share price, I think that Auto Trader shares could offer value for long-term FTSE 100 investors who are betting on the economy’s recovery.
T Sligo 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.