Auto Trader (LSE: AUTO) is the UK and Irelands largest digital automotive marketplace, and currently sits at the heart of the nations vehicle buying process. Earlier this month the FTSE 250-listed group announced a strong set of interim results for the first half of its financial year through to 25 September. The firm revealed an 11% rise in revenues to 153.9m, compared to 138.2m reported for the same period a year earlier, with underlying operating profit rising by an impressive 23% to 102.3m.
Market domination
Over the years, Auto Trader has become the go-to place for buying or selling a used car in the UK. In fact, I remember back in the old days, before the internet, buying a copy of the weekly magazine and flicking through its pages looking for affordable bargains. Sadly, after 36 years, the final edition of the printed magazine was published in June 2013, with the company deciding to focus on its online business.
But for boththe old days ofprint to todaysonline focus, inmy view, the companys biggest asset has always beenits strong recognisable brand. Auto Trader todayattracts around 60m cross platform visits each month. Yes, that sounds impressive, but for me whats most encouraging is that 70% of these visits are now coming through mobile devices. Thats the way consumersare going and thecompany is giving them what they want. And themarketplace has the largest pool of vehicle sellers, listing over 430,000 cars each day, with 80% of automotive retailers in the UK advertising on the website.
Is therea downside? Well, itsno secret that Auto Trader dominates the car buying and selling market in the UK and Ireland, and although the City is forecasting good earnings growth over the medium term, I just cant see it growing at breakneck speeds forever. For that reason I see Auto Traders forward P/E rating of 26 a little demanding. I would suggest keen investors wait for further weakness in the share price before buying to gain a more favourable valuation.
Aveva swings to profit
Another mid-cap growth firm that Im currently having mixed feelings about is engineering software provider Aveva Group (LSE: AVV). In its latest market update, the Cambridge-based businessannounced a swing to profit for the first half of its financial year, with revenues also rising despite continued tough trading conditions.
For the six months to the end of September the group reported pre-tax profits of 5.5m, compared to an 800k loss for the same period in 2015. Total sales climbed 3% higher to 84.3m, from 82m a year earlier, but this was assisted by favourable currency translation. On a constant currency basis, revenues actually came in 6% lower, and for me thats a more telling measure of performance.
After two years of decline, analysts reckon Aveva will return to growth this year viaan anticipated 14% rise in earnings, with a further 10% improvement forecast for FY2018. But I think that with the firms P/E rating of 24, this projected growth is already baked into the price, and at current levels I just dont see any compelling reason to buy.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Auto Trader. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
