Here’s why I think the REA Group share price is a buy right now

A young family with two kids smiling as they stand on the balcony of an apartment they are inspecting after seeing it advertised on REAA young family with two kids smiling as they stand on the balcony of an apartment they are inspecting after seeing it advertised on REA

The REA Group Limited (ASX: REA) share price has fallen in 2022, just like many other ASX shares.

REA Group shares are currently down around 40% from the start of the year.

With the business now trading significantly lower, I believe that it’s looking like a quality pick during the carnage for many ASX growth shares.

What does REA Group do?

The company describes itself as a multinational digital advertising business that specialises in property. It says it operates Australia’s leading residential and commercial websites — realestate.com.au and realcommercial.com.au.

REA Group also says it owns the leading website dedicated to share property, Flatmates.com.au, as well as the property research website property.com.au. It owns mortgage broking businesses Smartline and Mortgage Choice as well as property data services business PropTrack.

The company also has a few international investments. It holds a controlling interest in REA India, which is the operator of established brands Housing.com, Makaan.com and PropTiger.com, and owns a leading portal in China called myfun.com. It also holds a minority shareholding in Move Inc, which owns realtor.com in the US, and the PropertyGuru Group, which is the operator of leading property sites in Malaysia, Singapore, Thailand, and Vietnam.

Recent trading

Before I get to my thoughts on the business, let’s look at the most recent trading update from the company.

Last month, the ASX share told investors about its numbers for the three months to 31 March 2022. Excluding acquisitions, revenue went up 17% to $278 million while operating expenses only climbed 6% to $122 million, leading to earnings before interest, tax, depreciation and amortisation (EBITDA) rising 23% to $155 million and free cash flow going up 35% to $91 million.

However, the company noted that April national residential listings were down 8% year-on-year, with Sydney listings down 19% and Melbourne down 18%. It said national listings would likely be down year-on-year in the fourth quarter, reflecting “very strong prior period listings and potential impacts from the federal election”.

But, the company did say it expects fourth-quarter volume headwinds to be more than offset by contracted price increases and increased depth penetration.

It’s targeting full-year positive operating jaws, meaning that it’s aiming for underlying profit margin growth.

Why I think the REA Group share price is better value

I think REA Group has a strong platform for growth. Its strong market position for advertising property allows it to increase prices regularly while continuing to attract a high number of sellers and potential buyers. It receives 124 million average monthly visits and 3.4 times more visits for realestate.com.au than the nearest competitor each month on average.

The international element of the business gives it more long-term growth potential in my opinion, with its exposure to countries with large populations such as India and the USA.

It generates good free cash flow, as seen by its quarterly update, and it has also been paying a dividend that has grown every year since 2009 apart from 2020 when COVID-19 struck.

With the quality business model I’ve described above, I think the REA Group share price is much better value after a near 40% fall in 2022.

The post Here’s why I think the REA Group share price is a buy right now appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

See The 5 Stocks
*Returns as of January 12th 2022

(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;
}
}

setButtonColorDefaults(“#43B02A”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43B02A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()

More reading

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/QqPTKlz

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s