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Is the REA Group Limited share price a buy today?

The REA Group Limited (ASX: REA) share price has grown by 15% since 7 February 2017, is it still a buy?

REA Group is the owner of several real estate websites in Australia such as realestate.com.au, realcommercial.com.au and flatmates.com.au. It’s been one of the best growth stocks on the ASX over the last 10 years and now has a market capitalisation of $7.9 billion.

There is a lot to like about REA Group, such as:

International diversification

REA Group has a presence in many countries other than Australia. It has a presence in the USA with its stake in Move Inc., a presence in South East Asian countries with iProperty, Tigerprop in India and REA Group has a small business in Europe too.

Growing internationally gives the company several avenues to boost profit and allows it to direct cash towards whatever is the best investment opportunity.

Market leader

Realestate.com.au is the clear market leader in Australia. This creates the pleasing effect where both property owners and prospective buyers both want to go to the biggest portal first.

Being the market leader means REA Group can implement price hikes with little detrimental effect.

Dividend machine

REA Group has been increasing its dividend at a strong rate ever since it first started paying a dividend.

In October 2009 it paid a 10c per share dividend, in September 2016 it paid a 45.5c per share dividend. I wouldn’t expect as much growth over the next seven years, but with a dividend payout ratio of around 50% there is scope for a lot of re-investment back into the company for more growth.

Is it a buy?

There is a risk that a slowing housing market could hurt REA Group’s revenue and also hurt sentiment about the business because it’s property related. This happened when the share price went below $50 in November 2016.

Therefore, with the shares currently trading at 35x FY17’s estimated earnings and with a grossed-up dividend yield of 2.04%, there is a risk that today’s share price of $59.91 could be too high in the short to medium term.

In the long-term I think REA Group will grow strongly and justify today’s share price. But I’m going to wait until the shares are a lot closer to $50 before I consider buying.

In the meantime, I'd rather put my capital into one of these growth stocks that could be better value and grow just as strongly as REA Group.

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Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. 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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