The Auto Dealer Group (LSE: AUTO) share price climbed 65% up to now 5 years. Nevertheless it reversed on FY outcomes morning Thursday (29 Could), down greater than 14% as I write simply earlier than 11am.

On the again of a 5% income rise, revenue earlier than tax grew 9% with adjusted earnings per share (EPS) up 8%. Money from operations rose by 5%.

The corporate lifted its full-year dividend by 10% to 10.6p per share. It represents solely a 1.2% yield. However the £88.4m paid in dividends up to now 12 months is soundly overwhelmed by the £187.3m returned by way of share buybacks.

The corporate had £15.3m internet money at 31 March. That’s a giant enchancment from the £11.3m internet debt on the finish of the earlier 12 months. However analysts had predicted greater than £30m internet money. They’ve the determine rising strongly within the subsequent few years, however we’ll absolutely see some adjustment now.

Robust market

CEO Nathan Coe stated: “Despite broader macroeconomic uncertainties, the UK car market is in good health.”

To again that up, the outcomes assertion added that it continues to see “robust ranges of demand for used automobiles, with a report variety of cross-platform visits and minutes spent on Auto Dealer. As we now have moved by means of the 12 months, provide has remained constrained for automobiles aged 3 to five years outdated. This mixture of excessive demand and restricted provide in key age cohorts has led to automobiles promoting at a sooner charge than any time in our latest historical past.“

So why the share price fall? Used automotive gross sales have been robust up to now 12 months. But when the availability is slowing, that would restrict the expansion outlook for the 2026 12 months and past.

The corporate says it expects retailer income progress between 5% and seven% within the present 12 months. Nevertheless it added that the acceleration seen final monetary 12 months was primarily pushed by a “fall in used car prices, which have steadily increased throughout the second half of the year as retailers have sought more normalised margins.”

Valuation

There’s nonetheless a common Purchase consensus amongst Metropolis analysts. However a couple of are turning bearish on the inventory, ranking it a Promote primarily based on a toppy inventory valuation.

These figures put Auto Dealer on a trailing price-to-earnings (P/E) ratio as excessive as 28. That’s round twice the FTSE 100 common. Previous to this replace, forecasts confirmed EPS rises bringing it down, however solely so far as 23 by 2027.

I see three issues coming collectively right here. Auto Dealer has had a powerful five-year share price run. The valuation seems to price in a good bit extra earnings progress. And the outlook suggests provide stress within the used automotive market might gradual progress. That appears like a recipe for profit-taking.

I charge Auto Dealer as a powerful enterprise with a strong progress outlook. And it’s bought to be one to think about for the long run. However I reckon buyers may need pushed it a bit too far, and I’ll wait and hope for cheaper shopping for alternatives forward.