This has been a tough year for investing. The headwinds of consistently elevated inflation and economic slowdown have contributed to many shares falling, with general indexes far below pre-2022 levels. Many of my favourite sectors have suffered intensely, making finding the right opportunity harder than in previous years.
The FTSE 100 is down over 4% year to date, and the wider FTSE 350 is down almost 8%. From an investment perspective, this has resulted in a seemingly wasted year; all attempts at share price gains are likely to have been eroded on average.
Finding new opportunities
This past performance is an unfortunate reality, but given that the past can’t be changed, I’m focused on new opportunities. To make my life easier, I have used a filter to scan the FTSE and find shares that match my particular criteria.
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Previously my filters have ranged from simple price-to-earnings (P/E) ratio scanners to more complex value or growth screeners. This time I have decided to strip back the process by looking for companies trading at their year low. Mass sell-offs often mask good quality companies trading at a discount. These are the ones I want to find and add to my portfolio.
A tempting company
One share identified by my filter was Auto Trader Group (LSE: AUTO), a digital automotive marketplace operating in the UK. The company has a strong track record of share price growth, rising almost 190% in the six years between floating on the exchange and the end of 2021. However, 2022 has seen the price fall 27%, meaning it recently hit a year-low price of 486.2p.
Despite these falls, the company’s underlying fundamentals are solid. It has high profit margins and efficiently generates returns from invested capital. Additionally, free cash flow levels are intense, and debt levels are low, helping to illustrate the share’s quality. It even offers a dividend yield of 1.6%, which has been paid consistently for the last seven years and is forecast to grow to 1.7% next year. This is quite rare for a growth company, as often all spare earnings are invested back into the company, and is a positive.
However, the company currently has a P/E ratio of over 20, making it not exactly a value opportunity. This is despite the fall in share price and could indicate the company is returning to a more reasonable price. Further evidence for this comes from the forecast growth in earnings per share (EPS) of just under 5%. This is below the three-year average of 8.2%, and indicates a potential slowdown in growth.
Nonetheless, I would add Auto Trader to my portfolio once I attain the necessary cash. The company presents a good opportunity to invest in a high-quality company at a considerably discounted level.
