By Peet Serfontein & Sithembile Bopela
We initiate a long position with a target price of £800 (reward/risk ratio of 2.2:1) and a stop-loss of £690.
Auto Trader operates as a digital automotive marketplace. The company's platform allows its users to buy and sell a range of vehicles, such as cars, trucks, and vans.
The company dominates the used car space in the UK, with over 40 years of operating the region's most extensive catalogue of used car classifieds. After its transformation in 2013, the company is now a 100% digital business and the largest digital automotive marketplace, helping vehicle retailers sell more vehicles more efficiently.
Technically, the formation of an inclining channel pattern makes the stock a strong candidate for a long investment position (see the black parallel trendlines on the main chart as well as the insert). This pattern is characterised by higher highs and higher lows, contained within two parallel lines sloping upwards, and typically signifies a positive or bullish trend in the market.
The stock also appears to be in a markup phase and is trading above its 200-day simple moving average of ~£678.28, which supports our bullish bias. A "markup" phase sees a share (or the market as a whole) enter a bullish trend, following a period of accumulation where early investors have started to buy into the share at lower prices.
Fading downside price momentum, according to the MACD indicator and recent upwards movement of the on-balance volume indicator, supports a bullish stance.
According to forward calculations of the RSI (Relative Strength Index), the stock will be overbought at ~£1 100. This classifies our profit target of £800 as realistic.
Share Information
| Share Code | AUTO |
|---|---|
| Industry | Industrials |
| Market Capital (GBP) | 6.52 billion |
| One Year Total Return | 14.68% |
| Return Year-to-Date | 0.88% |
| Current Price (GBP) | 724.40 |
| 52 Week High (GBP) | 768.40 |
| 52 Week Low (USD) | 580.20 |
| Financial Year End | March |
| The stock price has bounced from recent lows, with various technical indicators suggesting further upside potential. |
Consensus expectations
(Bloomberg)
| FY23 | FY24E | FY25E | FY26E | |
|---|---|---|---|---|
| Headline Earnings per Share (GBP) | 0.25 | 0.28 | 0.32 | 0.36 |
| Growth (%) | 14.25 | 13.07 | 13.13 | |
| Dividend Per Share (GBP) | 0.08 | 0.09 | 0.10 | 0.12 |
| Growth (%) | 9.52 | 13.04 | 12.50 | |
| Forward PE (times) | 25.60 | 22.64 | 20.01 | |
| Forward Dividend Yield (%) | 1.27 | 1.44 | 1.62 | |
| Earnings growth expectations are robust medium- to long-term. | ||||
Rationale
Technical Analysis:
Long-term fundamental view:
| Share Name and position | VWO - Buy (Continue to hold) | MS - Buy (Continue to hold) | PNW - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 41.57 | 89.14 | 73.02 |
| Current | 43.25 | 92.65 | 75.04 |
| Movement | 4.0% | 3.9% | 2.8% |
|
A developing symmetrical triangle pattern remains of interest. The stock remains above its 200-day simple moving average. Upside price momentum regained some strength, supporting the trade strategy.
Our profit target remains at $48.00 with a trailing stop-loss of $42.20. Exit the trade by 14 June 2024. |
The development of a falling wedge pattern in an uptrend is encouraging. The stock is trading above its 200-day simple moving average. Upside price momentum is supportive.
Our profit target is $101, with a trailing stop-loss of $88. Exit the position around 14 August 2024. |
A developing symmetrical triangle remains of interest. The stock remains below its 200-day moving average, and we maintain a counter trend strategy. Upside price momentum is supportive.
Our profit target is $81, with a trailing stop-loss of $72. Exit the trade by 5 July 2024. |
| Share Name and position | PEP - Buy (Continue to hold) | MO - Buy (Continue to hold) | FRAS - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 171.44 | 43.54 | 799.50 |
| Current | 175.45 | 43.98 | 805.00 |
| Movement | 2.3% | 1.0% | 0.7% |
|
A price above key support remains of interest. Now trading above its 200-day simple moving average. Upside price momentum supports the trade.
Our profit target is $190, with a trailing stop-loss of $170.30. Exit the position around 26 June 2024. |
A falling wedge pattern remains of interest. The stock remains above its 200-day simple moving average. Upside price momentum supports the trade strategy.
Our profit target is $48, with a trailing stop-loss of $42.30. Exit the position around 17 July 2024. |
A developing symmetrical triangle remain remains of interest. The stock remains below its 200-day moving average, and we maintain a counter trend strategy. Fading downside price momentum is supportive.
Our profit target is $897, with a trailing stop-loss of $766. Exit the trade by 21 June 2024. |
