Auto Trader Group PLC (LSE:AUTO) was downgraded by UBS as it faces "increasing risk" as car listings are expected to decline but the shares have been heading higher.
The bank's proprietary car tracker points to trade used car listings falling in December and are down 8% in the year to date, while the shares are up circa 20%.
Trade used cars listed on the FTSE 100 group's platform are now 7% below the average for 2022, though listings on other European auto platforms have been rising, with around a 14% rise on average compared to last year.
"We think the key reason is that demand for used cars in the UK remains surprisingly strong, while supply has still not recovered," analyst Adam Berlin said in a note.
The analyst said data suggests UK used car transactions grew 6% in the fourth quarter, while were down 7% and 13% in the US and Germany.
"We think strong demand for used cars may reflect (1) a weakening in the demand for EVs given declining fuel prices (share of EVs in used car advert views on Auto Trader declined to 4% in Jan'23 from 6% in Jun'22) and (2) ongoing lack of inventory in new cars overall."
At their current level, Auto Trader shares are trading in line with their average pre-Covid forward PE at 23x and in line with the average sector PEG ratio, Berlin noted.
"We accept upside catalysts do reman though if we see: (1) a recovery in listings as supply improves and demand weakens; (2) evidence of progress in digital transactions; and (3) an improvement in Autorama performance, should new car supply normalize during 2023."
The UBS rating was lowered to 'neutral' from 'buy' but the share price target was lifted to 630p from 600p, while the closing price yesterday was 627p.