On Friday, Morgan Stanley (NYSE:MS) shifted its stance on Auto Trader Group PLC (AUTO:LN) (OTC: ATDRY) stock, downgrading from Equalweight to Underweight. The firm also adjusted the price target to GBP6.00 from the previous GBP6.25.
This decision reflects a cautious outlook on the company's near-term revenue prospects and its market position relative to competitors.
The analyst from Morgan Stanley expressed concerns that the current market and consensus expectations for Auto Trader's Deal Builder product might be overly optimistic.
Additionally, the analyst noted that the market appears to underestimate the competitive threat posed by Google (NASDAQ:GOOGL) in the automotive sector, compared to the attention given to CoStar's challenge in real estate.
Despite the downgrade, the analyst maintained that there is no change in their overall view of Auto Trader as a leading car vertical operator in Europe.
The company is still recognized for its strong position in the market, yet the stock now trades at a premium compared to Rightmove (OTC:RTMVY) PLC (RMV), which Morgan Stanley does not find justified given the similar trends in revenue and earnings per share (EPS) growth between the two companies.
Morgan Stanley's cautionary stance comes at a time when Auto Trader's valuation seems to reflect a more favorable outlook than the firm believes is warranted.
While acknowledging the long-term potential of Deal Builder, the timing for a more bullish perspective on the product's monetization is not considered opportune by the analyst at this juncture.
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