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SEEK Limited or Carsales.Com Ltd: Which should you buy?

Many people visit these websites every day. Possibly you have used them yourself or at least know of these two online businesses – Carsales.Com Ltd (ASX: CAR) and SEEK Limited (ASX: SEK). Each has risen strongly in recent years, becoming the market leaders in their fields.

They bypassed the traditional print media leaders like Fairfax Media Limited (ASX: FXJ), which used to control the lion’s share of classified ads for new or used cars and job listings, and set up their own markets. Both are successful companies and attractive growth stocks.

Yet if you had to choose between the two stocks, which should buy? Which company could give you the better overall return over time?

Earnings Growth

First, if you compare past earnings per share (EPS) growth, both have risen steadily with no losses. That’s great to see! However, in the past five years, which has been growing earnings the most?

In the table below, you can see Carsales.Com started out strongly with almost 32% growth in financial year 2011. SEEK on the other hand had a more average gain. Along the way, though, SEEK’s growth has been trending up, while Carsales.Com has trended down.

Annual Earnings Per Share 

        (cents) 2010 2011 2012 2013 2014
SEEK 26.6 28.9 30.6 40.9 49.5
                     % change 8.65% 5.88% 33.66% 21.03%
Carsales.Com 18.5 24.4 30.5 35.2 40
                     % change 31.89% 25.00% 15.41% 13.64%

Data Source: Morningstar

SEEK seems to be pulling ahead, so perhaps it is better for growth. Both companies are expanding in Asia, acquiring and investing in established companies covering different countries in the region, so that race will continue. For now, SEEK wins this round.

Dividend yield and growth

Currently, SEEK pays a 2.1% yield fully franked, whereas Carsales.Com offers a bit more at 3.2% fully franked. Analysts’ forecasts for dividend growth over the next several years have SEEK expecting about 15% annually. Carsales.Com’s projected growth is about 11% annually. At present, Carsales.Com is ahead, but dividend growth over a number of years could have SEEK out front due to higher EPS growth. That makes me lean toward SEEK as better for future dividend income.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policyThis article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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