Is now an opportunity to buy Trade Me Group Ltd?

Has the sell-off been overdone?

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Trade Me Group Ltd (ASX: TME) listed on the ASX in December 2011, at an issue price of $2.08, but after hitting a high of $4.55 last year, has slumped back to $3.29, losing 13% this calendar year alone.

The company is New Zealand's leading online marketplace and classifieds business. For Australian investors, think of it as Seek Limited (ASX: SEK), REA Group Ltd (ASX: REA), Group Ltd (ASX: CRZ), RSVP and Stayz (both Fairfax Media Holdings (ASX: FXJ) websites), Gumtree, Alibaba and Ebay all rolled into one.

At listing, the company had more than 2.8 million members, with an average 1 million members regularly using the site each and every month. Considering New Zealand has a population of just over 4.5 million, you can see that Trade Me has a massive market share. Ebay tried to usurp Trade Me's business previously, but appears to have given up.

But it seems Trade Me has recently thrown its weight around with NZ real estate agents, and as a result had lost around 10% of property listings. Concerns that the company could lose more have been blamed for the share price pull back. But considering property contributes just 15% of total revenue, the recent share price falls looks overdone.

So far, business has been rollicking along, with revenues in the latest six month period rising by 6.6% over the previous year to NZ$85.7 million, and net profit up 1.7% to NZ$38 million. In other words, for every $1 of revenue, 44 cents of that falls directly through to the bottom line.

Trade Me has also used its data to expand into new applications, including income protection and mortgage insurance comparison, travel bookings, and services. The company is also trying to entice big brands to sell new products through its website, such as white goods.

Currently trading on a prospective P/E ratio of 16.5 times and paying a dividend yield of 3.5%, Trade Me looks attractive, given its market dominance and growth it can achieve through tack on acquisitions and organic growth.

If Trade Me is not for you, here's two ideas you are sure to like…


Motley Fool writer/analyst Mike King owns shares in Seek and You can follow Mike on Twitter @TMFKinga

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