Despite the recent market slide, some companies in the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) still appear seriously overpriced.
Take Navitas (ASX: NVT). The education company offers university and English language programs, as well as a number of related training services. The shares have risen 35% in the last 12 months. They’re now trading for 29 times earnings, despite relatively flat earnings and an organizational restructure adding to corporate costs.
Carsales.com (ASX: CRZ) shares also looks expensive, trading for 26 times earnings or on an EV to EBITDA basis of about 19. It’s true that Carsales.com has a dominant position in its native Australia and enviable margins, and that the company is looking to expand overseas, with interests in Asia and Brazil. However, these growth prospects must be weighed against Australian companies’ decidedly mixed track record of overseas expansion.
Likewise, internet powerhouse REA Group (ASX: REA), which operates Realestate.com among other web properties, trades for nearly 40 time earnings and on an EV to EBITDA basis of about 27. That’s a rich valuation indeed – and one that offers little, if any, downside protection to potential investors today.
Iress (ASX: IRE), which makes equity market software, also enjoys high margins and a dominant market position in Australia. The company also is seeing strong growth domestically in its wealth-management software business, and pays a dividend in the 4.8% range (90% franked). Unfortunately, Mr. Market knows all about this company’s prospects and competitive advantages, and the shares are priced accordingly at 26 times earnings.
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Motley Fool contributor Catherine Baab-Muguira has no financial interest in any company mentioned in this article.
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