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What does 2014 have in store for these 3 growth stocks?

There’s more than one theme which is common to the following three growth stocks. They are all leading online classified advertising businesses in their respective markets of real estate, employment and automotives. They also all boast of share price outperformance in 2013, thanks to stock prices which have appreciated by 100%, 75.7% and 30.4% respectively.

The three growth stocks I am referring to are REA Group (ASX: REA), Seek  (ASX: SEK) and Carsales.com (ASX: CRZ).

For the 12 months ending June 2013, REA Group – which owns and operates the realestate.com.au website amongst others – reported year-on-year revenue growth of 21% and net profit after tax (NPAT) growth of 26%. The company not only continued to grow its Australian business at an impressive pace but also grew its Italian, Luxembourg and Hong Kong businesses at double-digit rates too. The group’s expanding international business and first quarter results showed a 26.9% increase in revenue, suggesting it will continue to be a growth stock in 2014.

Australia’s number one job site owner Seek reported another record full-year profit result in 2013. The company grew revenues by 40% in financial-year (FY) 2013 and grew NPAT by 8%. Seek has evolved its business over the past decade from a domestic online employment business into a global online business with operations in 12 countries and strong education assets too. While NPAT growth might appear a little subdued, the board did declare a 27% increase in dividends over the prior year. Management hasn’t specifically quantified guidance for FY 2014 but they were upbeat at the recent AGM and confirmed that they expect growth in revenue and NPAT (excluding significant items).

Like the other two businesses discussed above, Carsales.com has expanded both outside of its original website and also overseas. Most recently this has included the purchase of a 30% holding in Webmotors, Brazil’s number one automotive website. The company provided shareholders with growth in revenues of 17% and growth in NPAT of 17% for FY 2013 compared with FY 2012. Its commanding suite of products and expansion activities should allow Carsales.com to grow revenues and earnings in 2014.

Foolish takeaway

Investors always need to consider the price they pay for a stock, as rarely does overpaying end well. However paying up for high quality, high growth stocks can be justified, but be alert to a slowing growth rates.

Growth stocks often retain much of their earnings to reinvest in more growth which can lead to both low dividend pay-out ratios and low dividend yields.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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