Should You Buy REA Group Limited Shares at this Price?

What happened to the REA share price?

The REA Group Limited [ASX:REA] share price was marginally up by early afternoon trading today. Over the previous five days, the stock did worse. However, over a one month period, REA outperformed the ASX200 by 6%.

Why did REA shares do this?

REA Group is the Australian-based property advertiser. When you log onto realestate.com.au, that is a REA product. Analysts are currently split between an ‘Outperform’ rating and a ‘Hold’ rating on the stock. But most agree that the company will make more revenue in 2016 and 2017. Its earnings will also grow and its long term growth rate is forecasted to be in the hyper double-digit range.

There is no doubt that the company is likely to continue to grow. The question is on its valuation. Is it in fact too expensive? Coming in at a P/E ratio of 35.11, REA shares are more expensive than the other media stocks in the ASX300 universe and is definitely not cheap.

The stock has a beta of 1.33, meaning it moves more than the broad market, giving a potentially higher pay-off as well as shaper downside risk to stock investors. The company pays a dividend and its dividend growth rate has been fantastic over the last five years.

Sales have grown and its EPS has done well over a five year period. Its profit margin is also comparably much higher than its peers. The company has a good enough current ratio and very low debt, indicating good financial health.

Overall, REA Group has good fundamentals.

What now for REA?

Is the REA share price too expensive at its current valuation? It is likely so. And that is why investors need to be watchful and agile on highly-priced stocks such as REA Group. As a momentum stock, it is not one of the top performers in the media sector and its ranking tends to vary through time.

Owning REA Group is not much of a problem if the investor is fully aware of the valuation the stock is sitting on. And as a result, the investor should be prepared to act actively.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor


At Money Morning our aim is simple: to give you intelligent and enjoyable commentary on the most important stock market news and financial information of the day - and tell you how to profit from it. We know the best investments are often the hardest to find. So that's why we sift through mountains of reporting, research and data on your behalf, to present you with only the worthwhile opportunities to invest in.

Become a more informed, enlightened and profitable investor today - by taking out your free subscription to Money Morning now.


Money Morning Australia