The Auto Trader Group (LSE: AUTO) share price climbed 65% in the past five years. But it reversed on FY results morning Thursday (29 May), down more than 14% as I write just before 11am.

On the back of a 5% revenue rise, profit before tax grew 9% with adjusted earnings per share (EPS) up 8%. Cash from operations rose by 5%.

The company lifted its full-year dividend by 10% to 10.6p per share. It represents only a 1.2% yield. But the £88.4m paid in dividends in the past year is soundly beaten by the £187.3m returned via share buybacks.

The company had £15.3m net cash at 31 March. That’s a big improvement from the £11.3m net debt at the end of the previous year. But analysts had predicted more than £30m net cash. They have the figure rising strongly in the next few years, but we’ll surely see some adjustment now.

Strong market

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

To back that up, the results statement added that it continues to see “strong levels of demand for used cars, with a record number of cross-platform visits and minutes spent on Auto Trader. As we have moved through the year, supply has remained constrained for vehicles aged 3 to 5 years old. This combination of high demand and restricted supply in key age cohorts has led to cars selling at a faster rate than any time in our recent history.“

So why the share price fall? Used car sales have been strong in the past year. But if the supply is slowing, that could limit the growth outlook for the 2026 year and beyond.

The company says it expects retailer revenue growth between 5% and 7% in the current year. But it added that the acceleration seen last financial year was mainly driven 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 still a general Buy consensus among City analysts. But a few are turning bearish on the stock, rating it a Sell based on a toppy stock valuation.

These figures put Auto Trader on a trailing price-to-earnings (P/E) ratio as high as 28. That’s around twice the FTSE 100 average. Prior to this update, forecasts showed EPS rises bringing it down, but only as far as 23 by 2027.

I see three things coming together here. Auto Trader has had a strong five-year share price run. The valuation appears to price in a fair bit more earnings growth. And the outlook suggests supply pressure in the used car market could slow growth. That sounds like a recipe for profit-taking.

I rate Auto Trader as a strong business with a solid growth outlook. And it’s got to be one to consider for the long term. But I reckon investors might have pushed it a bit too far, and I’ll wait and hope for cheaper buying opportunities ahead.