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Auto Trader Group plc (LON:AUTO): Poised For Long Term Success?

In March 2018, Auto Trader Group plc (LON:AUTO) released its earnings update. Generally, analyst forecasts seem fairly subdued, with earnings expected to grow by 6.6% in the upcoming year compared with the higher past 5-year average growth rate of 45%. Currently with trailing-twelve-month earnings of UK£171m, we can expect this to reach UK£183m by 2019. Below is a brief commentary around Auto Trader Group’s earnings outlook going forward, which may give you a sense of market sentiment for the company. For those keen to understand more about other aspects of the company, you can research its fundamentals here.

View our latest analysis for Auto Trader Group

Can we expect Auto Trader Group to keep growing?

The 17 analysts covering AUTO view its longer term outlook with a positive sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. To get an idea of the overall earnings growth trend for AUTO, I’ve plotted out each year’s earnings expectations and inserted a line of best fit to determine an annual rate of growth from the slope of this line.

LSE:AUTO Future Profit November 1st 18

From the current net income level of UK£171m and the final forecast of UK£218m by 2021, the annual rate of growth for AUTO’s earnings is 8.1%. This leads to an EPS of £0.24 in the final year of projections relative to the current EPS of £0.18. Growth in earnings appears to be a result of cost-cutting initiatives, since top-line is predicted to rise at a slower pace than earnings. With a current profit margin of 52%, this movement will result in a margin of 55% by 2021.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For Auto Trader Group, I’ve put together three relevant aspects you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is Auto Trader Group worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Auto Trader Group is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Auto Trader Group? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.