Down 14% in a year, I think this UK stock could be primed to rally

The UK economic situation right now isn’t the best. Yet some sectors can perform well even during tough periods. I’ve spotted a popular UK stock that’s fallen 14% over the last year. However, when I think about how business could be positively impacted by things over the coming year, it could do well.

Addressing the share price fall

I’m talking about Auto Trader Group (LSE:AUTO). Put simply, it’s the UK’s leading online automotive marketplace. It makes money as dealers pay to list their vehicles and pay subscriptions to gain access to tools and exposure.

Part of the reason why the stock’s down over the past year is due to supply. Dealers have struggled to source enough used cars to list. That means fewer cars to advertise, which limits listing revenue. Let’s also not forget about some of the struggles with regard to high interest rates, inflation, and cost pressure for both consumers and dealers. Due to these factors, I think some people have delayed buying or financing cars.

Despite these factors, I think things could change over the coming year.

Positive boosts

For a start, I think interest rates in the UK are going to fall sharply over the coming year. This could be a reaction to economic underperformance. Yet this could act to help Auto Trader. Instead of customers buying new cars directly from the dealership, they could spend more time being cost-focused and using Auto Trader to source better used car deals.

With lower interest rates, it becomes more affordable to buy a car. This could coincide with lower inflation. When prices are relatively stable, it gives people more confidence to commit to a large purchase like a car.

The stock could also get a boost from ongoing US tariffs. With import duties for various countries being imposed on the auto sector, I think manufacturers could find the UK a very attractive place to push car sales. This is because at the moment we don’t have as high tariffs (and therefore end costs haven’t surged recently) when compared to other nations.

Finally, the company’s pushing hard with artificial intelligence (AI) integration. They’re rolling out tools such as Co-Driver and Deal Builder that can drive customers towards buying. It also provides data that allows Auto Trader to tailor the experience to similar users.

The bottom line

I feel the stock‘s been under a cloud recently, mostly driven by investor recalibrating their expectations about company growth. Supply constraints still represent a risk going forward. Yet I think sentiment’s too negative around the company right now. The scope to outperform as interest rates fall and AI efficiencies get felt is large.

Therefore, it’s a stock I’m seriously thinking about purchasing in the coming weeks and feel investors might want to consider it for their own portfolios.

The post Down 14% in a year, I think this UK stock could be primed to rally appeared first on The Motley Fool UK.

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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Auto Trader Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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