The good thing about the recent falls in the S&P/ASX 200 (INDEXASX: XJO) is that the increased volatility can create opportunities for long-term investors to purchase shares in high quality companies at more attractive prices.
One leading stock which had a "bad" week – falling 4% compared with the 2.2% fall in the index – was global employment classifieds and education business SEEK Limited (ASX:SEK). Over the past six months, SEEK's share price has also underperformed the market, however over the longer term the stock has a stellar history of outperformance.
There's a lot to like about SEEK's business model
Like its peers REA Group Limited (ASX: REA) and Carsales.Com Ltd (ASX: CRZ), SEEK has carved out a leadership position for itself in the Australian market. Arguably however, the company has been even more successful than its peers at replicating its model overseas.
In fact in financial year (FY) 2014, revenue from the SEEK International division ($384.4 million) overtook the revenue from SEEK's Domestic division ($241.2 million).
SEEK Education is also a promising and growing contributor to the group. The division enrols around 50,000 students per annum and provides education to a further 20,000 per annum. In FY 2014 earnings increased from $40.8 million to $51.3 million.
A hefty multiple
The problem for value investors has always been the price tag attached to SEEK. In FY 2014 the group earned 52.7 cents per share (cps) which was an impressive growth rate of 30.8% on the 40.3 cps earned in FY 2013. With the stock price currently at $16.42 the shares are trading on a hefty price-to-earnings multiple of 31x.
Outlook good but is it good enough?
Management has provided guidance to expect solid growth in reported revenue and EBITDA in FY 2015. That's not exactly a concrete guidance but based on consensus data provided by Morningstar it appears analysts are expecting earnings per share growth of around 26%.
At the current price and taking into account the expected growth rate, SEEK certainly doesn't look like a bargain purchase just yet. For long term investors however, the stock should probably be on your watchlist as further price weakness could push this very high quality company into buy territory.
