The Motley Fool

Seek and ye shall find

When it comes to selecting an online company it’s hard to beat Seek (ASX: SEK).

Seek is the dominant online website for job advertisements. The company also has international job sites and education offerings to help job hunters become more marketable by developing new skills. Seek has bought substantial stakes in international online sites within large populated and developing markets where Internet penetration is relatively low. These markets represent longer-term opportunities for considerable expansion. Some of these job sites, such as Zhaopin in China, could potentially eclipse the earnings potential from the domestic Australian market.

Seek has established a leading online presence in the Australian jobs market and is considered the first place where Australians look for employment opportunities. This dominance is demonstrated by the monthly site visits of 14 million. It is one of only a handful of hugely successful online service providers in Australia, including REA Group (ASX: REA)Carsales (ASX: CRZ) and Webjet (ASX: WEB). All enjoy continued success by being the first to get established in their respective markets. All have ridden the wave of change from print to online, and this trend is not abating.

Over many years Seek has demonstrated an excellent track record in delivering sales, profitability and dividends. Last financial year, revenue was up 40% and EBITDA up 24%. Dividends have grown from 9.2 cents per share in 2009 to 22 cents in 2013, with projected amounts of 24 cents in 2014, 28.8 cents in 2015 and 37 cents in 2016. Seek has excellent management led by Managing Director and Chief Executive Officer Andrew Bassat, who has always held a clear vision for the company’s future.

Although the ratio of debt to equity for Seek is high at 37.7, its interest cover is over 10 times, which is a comfortable enough position.  Return on equity has been well into double figures for recent years, and is currently 17.9%, which is impressive.  Furthermore, as stated in the 2013 Annual General Meeting, Seek expects to be a major beneficiary of improvement in the economic cycle.

Foolish takeaway

The only apparent problem with Seek is that its price to earnings ratio is always high, currently it is 44 times. Being a high growth stock, this is not surprising. Therefore investors in Seek need to look carefully when buying, and hold for the long term. One thing that is virtually certain is that Seek will not stop growing both in Australia and overseas for a long time, especially as penetration of the jobs and education markets has a lot further to go.

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Motley Fool contributor Chris Koenig does not have shares in any of the companies mentioned. 

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