Auto Trader Group PLC (LSE:AUTO) has hit a speed bump, according to a recent JPMorgan analysis, following its latest financial results.
JPMorgan maintains an "underweight" stance on the stock, setting a target price at 745p, citing persistent structural headwinds and uncertainties around its digital retailing initiatives.
Market dynamics pressure revenue
The American bank highlights that Auto Trader’s FY25 results reveal significant pressure on top-line growth, reflecting weaker market conditions.
Despite a partial recovery following a recent 11% share price drop post-results, JPM finds the current valuation demanding.
Shares are trading at 17 times enterprise value to EBITDA (EV/EBITDA), a valuation metric reflecting how the market prices a company's operating profitability, which JPMorgan describes as high on both a relative and absolute basis.
Slower earnings growth forecast
The financial institution notes a subdued earnings outlook for Auto Trader, forecasting earnings before interest, taxes, depreciation, and amortisation (EBITDA) to grow at an annual average of just 6% from 2026 to 2028.
This rate is notably lower compared to the 10% growth over the past two years. JPM maintains its below-consensus FY26 operating profit estimate at £397 million, anticipating a downward adjustment in broader market expectations by about 4% in the coming weeks.
Direction remains unclear
JPM raises concerns regarding Auto Trader’s digital strategy, particularly its "Deal Builder" initiative.
Analysts highlight uncertainty about the strategic direction and financial viability of this digital retailing product over the next 12-18 months.
This uncertainty further compounds investor caution, especially as growth prospects appear constrained by limited margin expansion and subdued stock and product developments.
Cash generation a positive
Despite these concerns, JPM acknowledges Auto Trader’s robust cash-generative business model, forecasting a 4% free cash flow yield for 2026.
Nevertheless, given ongoing challenges and strategic uncertainties, JPMorgan suggests investors remain cautious, reaffirming its sceptical stance on the stock.