Auto Trader Shares Lack Upside Momentum Despite Being ‘Well-Placed to Outperform’

Despite a 0.4% rise in Thursday’s session, Auto Trader (LON: AUTO) shares have started Friday off on the back foot, down over 1%, resuming the recent downtrend.

In fact, the stock is down more than 11% in the last three months, currently trading well below the 800p per share mark, with price having tested the 770p level to the downside a few times since August last year. 

However, Citi analysts believe the stock is “well placed to outperform” in a challenging macro environment due to the countercyclical characteristics of the used car market. 

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The bank upgraded Auto Trader to Buy from Neutral, raising its price target for the stock to 946p from 818p in a note this week.

The bank also highlighted the company’s strong competitive position and reasonable valuation.

Furthermore, they see the potential for upside in the stock based on a better-than-expected expansion in Deal Builder and a faster-than-expected recovery in leasing. 

They believe that if AUTO can deliver on Deal Builder, it will be well placed to benefit from the increase in online used car sales penetration, which adds +44p to their Bull case valuation. 

The investment bank also believes AUTO is undervalued relative to peers and offers the potential for additional growth in the mid to long-term.