Shares in REA Group Limited (ASX: REA) have been hammered by investors today, falling $2.30 or 4.9% despite having released what would seem to be a very impressive full-year earnings report. Below are some of the highlights from the classifieds agent.
- Net profit rose to $149.9 million, up 37% from the previous year. This was bolstered by strong growth in the local market
- EBITDA also increased by 37% to $225.1 million
- Revenue came in at $437.5 million, which resembles a 30% gain for the year
- A final, fully franked dividend of 35 cents per share, taking its total dividend for the year to 57 cents (compared to 41.5 cents a year ago)
- Earnings per share (EPS) increased by 36% to 113.7 cents per share
It is perhaps that last point that failed to impress the market today. Although a 36% rise in EPS is a solid result (particularly for a company with a market capitalisation of nearly $6.2 billion), the EPS figure still came in below expectations. According to Yahoo Finance, the consensus forecast had been 115 cents per share.
When such a large company is trading on a projected P/E ratio of nearly 41, a near earnings miss can prove quite deadly.
It is also possible that the mention of "challenging market conditions" in Italy played on investors' minds. Casa.it, which is Italy's leading digital real estate advertising business, still managed to record revenue growth of 22% for the year, although that was largely bolstered by currency movements. Revenue growth of just 4% was recorded based on the local currency.
Should you buy REA Group today?
REA Group Limited has been pegged as a 'blue chip of tomorrow'. With such a large market cap, you could argue that it's already achieved that status. While the company has certainly achieved strong growth in the past, it will need to continue doing so in the future to justify its lofty valuation. However, today may be a good opportunity for investors wanting to buy with shares now trading at $44.53.