Why the REA Group Limited share price is up 34% this year

Credit: Donaldytong

Since the beginning of the 2016 financial year the share price of leading online real estate classifieds advertiser REA Group Limited (ASX: REA) has soared 34%.

That’s an outstanding performance in its own right but particularly when considering the generally downbeat mood of the market which has seen the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) slip around 5% over the same period.

Here are three contributing factors which could explain why investors have been driving up REA’s share price.

1. The recent interim results of REA were impressive.

  • Revenue jumped 20% to $315 million
  • Net profit and earnings per share both surged 28% to $121 million and 91.9 cents per share (cps) respectively
  • Earnings before interest, tax, depreciation and amortisation (EBITDA) margin increased by 4% points to 59%
  • The fully franked interim dividend was increased by 22% to 36 cps

2. Overseas growth pipeline strengthening.

  • The acquisition of Asia-focused portal iProperty Group has recently completed and adds an attractive growth stream to REA’s operations. The expanded Asian operations complement the growth potential of REA’s European operations and US strategic investment in Move Inc.

3. Strong operating metrics reported for the six months ending December 31.

  • The group reported a 27% increase in average monthly visits to its Australian residential property portal and remains the clear leader based on property listings, site visits, page views and consumer engagement.

REA is one of a niche group of ASX-listed businesses which have cornered their respective online marketplaces. While REA is the leader in real estate classifieds, SEEK Limited (ASX: SEK) is the leader in employment and Carsales.Com Ltd (ASX: CAR) in automotive.

The attractiveness of their business models has led to these three stocks trading at a significant premium to the wider market. A premium is certainly justified, however, investors considering acquiring shares do need to be vigilant to not overpay.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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