The FTSE 100 is made up of various different types of companies. An investor can filter for growth, value, income or other areas of focus when trying to find stocks to buy. When delving into the growth category, here’s one share I’ve spotted that could be primed for another move higher.
Start the car
The stock is Auto Trader Group (LSE:AUTO). The share price is up 19% over the past year. Over the long term, it has been trending higher for many of the years since it went public in 2015.
The firm operates a relatively simple business model. It charges fees to both business and private sellers to list new and used cars on its portal. This platform is then marketed to the public, creating a marketplace for people to buy and sell cars.
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It’s a classic growth stock as revenue has continued to climb over the years. Last year, it grew by 16% to hit £500.2m. For context, back in 2015 this was £255.9m.
Another key growth metric is the average monthly cross platform visits. In 2015 it had 47.2m, by 2023 this reached 69.6m.
Reasons for further growth
At 617p, the next big level that I’m watching for is 700p. This would reflect just over a 13% increase from the current price.
I think this is a realistic level to hit within the next year. One reason for this is the fact that supply chain issues for new car production are easing. This not only helps to increase supply in the market but also helps to lower the price of used cars. This boosts Auto Trader due to higher revenue from more listings. It also should see buyers keen to snap up more vehicles due to the potential fall in used car prices.
Another reason for growth is the large investment and focus on technology. It rolled out 51,000 software releases last year as it pushes further with data models and other customer tools. This should help the business to capture more clients and direct them easily to find the right vehicle.
With increased supply and a better user experience, I don’t see why revenue can’t increase by another 16% in the coming year. Given the correlation of that demand with the share price, a 13% move higher is achievable.
A warning note
One of the largest risks to the company is the fact that the model isn’t unique. There are other car marketplaces that compete on the same playing field every day. Part of this problem comes from the fact that the business model is simple.
Therefore, the potential to lose customers quickly due to a competitor move or improvement is something that should be flagged up.
Buying now?
I do feel that investors who are considering adding a FTSE 100 growth name should think about buying Auto Trader shares now. And I think the share price could benefit over December if we get a Santa rally as some are predicting!
