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Is REA Group Limited the best growth stock on the ASX?

Credit: John St John

Last week leading online real estate classifieds operator REA Group Limited (ASX:REA) held its annual general meeting (AGM).

The occasion acted as a reminder of just how strong the growth at REA is and the outlook remains bright.

Here’s a reminder of some of the highlights from the 2015 financial year:

  • REA grew earnings by 20% to $523 million
  • Earnings before interest, tax, depreciation and amortisation (EBITDA) by 27% to $286 million
  • Net profit after tax (NPAT) grew 24% to $185 million
  • Earnings per share (EPS) up 24% to 140.6 cents per share (cps)
  • Total dividends per share increased 23% to 70 cps

REA obviously achieved solid operating results in the past financial year.

Here are some key reasons why investors can also take a positive view on the future:

  • Not only is REA’s realestate.com.au website the dominant, market leader in Australia but the group also has significant operations in Italy, France, and a growing presence in the USA.
  • The group has made a move to solidify its exposure to Asia through the potential acquisition of iProperty Group Ltd (ASX: IPP).
  • At the AGM, management provide a first quarter trading update. The results compared with the prior corresponding quarter showed revenues were up 21% to $146 million and that EBITDA has jumped 30% to $82 million.

According to one consensus of analysts’ forecasts, REA is expected to earn 174.5 cps in the current financial year. With the shares having outperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the past year, REA’s share price is currently trading at just under $49. This implies a price-to-earnings ratio of 28 times.

Considering the growth expectations and the quality of the group’s business model – which enjoys the benefit of similar network effects to Carsales.Com Ltd (ASX: CAR) and SEEK Limited (ASX: SEK) – this could arguably be a reasonable opportunity for acquiring the shares. However more conservative investors may prefer to wait for a lower entry point.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks 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 policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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