Another no brainer stock to buy today: SEEK Limited

Given the rapid growth in the digital economy around the world investors should look for the companies on the ASX best positioned to capitalise on this trend. In developed countries like the UK for example the digital economy is estimated to be growing 32% faster than the wider economy.

One digital leader on the ASX is online recruitment business SEEK Limited (ASX: SEK).

It now has online operations across Australia, New Zealand, China, India, Brazil, Mexico, Indonesia, India, Nigeria, Bangladesh, Philippines, Vietnam, Thailand, South Africa, Kenya, Malaysia, Hong Kong and Singapore, with early-stage businesses across many African countries as well. So you don’t need to be a Harvard Professor of World Geography to recognise that SEEK has a truly global reach, with the business estimating that its websites have exposure to 4 billion people or 30% of global GDP.

Investors should be able to see that this business has some genuine long-term potential to grow revenues and earnings if it’s able to execute its successful Australian model on the global stage. For the six months ending December 31 2015 international earnings exceeded domestic earnings, with its majority-owned Chinese website named Zhaopin delivering some gangbusters growth.

For the six-month period the NYSE-listed Zhaopin posted earnings of $38.6 million on revenues of $166.3 million. The revenue and earnings climbing 41% and 21% respectively over the prior corresponding period (pcp).

On a constant currency basis SEEK’s International operations posted revenue growth of 34% and earnings growth of 36% over the pcp, even though its significant Brazilian operations proved a major drag due to the economic problems in the country.

According to CommSec, SEEK delivered 53.1 cents in earnings per share for financial year 2015 which would place it on around 30x trailing earnings. The company is forecasting a full year FY16 profit around $195 million before investments in early stage global growth venture investments, with a forecast for an FY17 profit between $215 million to $220 million before early stage growth venture investments.

Therefore, SEEK is just about forecasting double-digit profit growth (before early stage investments) and if its international operations allow it to deliver consistent double-digit profit growth over the next five years and beyond the shares will seem cheap at $16.05 today.

As a long-term earnings and dividend growth prospect SEEK remains one of the ASX’s best prospects on the ASX alongside its digital classifieds peers REA Group Limited (ASX: REA) and Carsales.Com Ltd (ASX: CAR).

Risks (no stock is a no brainer route to riches, but if you do know of one, please be sure to let me know – 041 697 5716).

Substantial risks remain especially given the growth of US rival LinkedIn Corp. While other competitors could undercut SEEK price wise or disrupt its business model via digital innovation.

The business model is also vulnerable to a recession in Australia for example, which would lead to a large fall in the amount of jobs advertised. Its recent weak performance in Brazil is a good example of how poor macro-economic conditions in an operating region can take a blowtorch to revenues and earnings. For these reasons any holding in SEEK should only be a small part of a balanced portfolio.

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Motley Fool contributor Tom Richardson owns shares of REA Group Limited and SEEK Limited.

You can find Tom on Twitter @tommyr345

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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