Are REA Group shares a buy, sell or hold after their recent sell off?

Shares in REA Group Ltd (ASX: REA) were sold off heavily last week after the company released what, on the face of it, appeared to be a decent set of numbers.

The company, which owns the dominant real estate listings site in Australia, realestate.com.au, reported revenue from core operations of $916 million, up 5% year on year, and net profit of $341 million, up 9%.

The company also announced a $200 million share buyback.

So far, so good.

So why has the stock been sold down?

I’ve had a look at what the analysts are saying, and it’s fair to say they believe the company has been oversold.

The analysts at Macquarie have a $200 per share price target on REA Group, though they recommend it with a neutral rating.

They explain in a note to clients published this week that the company is being caught up in the fear around artificial intelligence, which is seen as a growing threat to many industries at the moment.

The Macquarie team said:

The rapid and ongoing AI developments have created debate on structural change within online real-estate classifieds. Most company stock prices are down in the last 12-months (23% average decline), and valuations are trading around pre-COVID levels, following a multi year post-COVID re-rating. Whether online real-estate classifieds are a net beneficiary of AI is too early to call in our view We do think that real estate is more protected than the AI risks facing small consumer shopping transactions however, the industry has historically seen disruptive shifts (i.e. from print), as well as complementary changes (i.e. introduction of mobile); we are cautious on putting AI into either of these categories just yet.

Elsewhere, UBS analysts are quite positive on the stock, with a buy recommendation and a price target of $218.90.

Their report out this week had the subheading “no visible deterioration in growth drivers”, and they said while the first half result was a minor miss to consensus expectations, the core residential performance was in line with estimates, “giving us comfort on sustainability of growth in medium term”.

They added:

(The) Stock continues to be impacted by concerns around competition and general AI fears. Whilst these concerns are valid, we are yet to see meaningful evidence in today’s results. We remain confident on REA’s ability to deliver double digit yield growth over next 3 years.

They added that the key risk in the second half remained the macroeconomic environment, with another one to two interest rate hikes “pencilled in by our economics team,” but they said, conversely, this could drive growth for REA as mortgage stress prompted people to sell houses.

REA Group shares were 2.2% higher on Monday morning at $171.71.

The post Are REA Group shares a buy, sell or hold after their recent sell off? appeared first on The Motley Fool Australia.

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