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3 big reasons to hold REA Group Limited shares

REA Group Limited (ASX: REA) owns and operates numerous property classifieds websites including the very popular realestate.com.au.

With a market capitalisation of $7.5 billion, REA Group is already one of the largest technology companies listed on the ASX. Thanks to its numerous overseas operations, however, there is scope for REA Group to grow much larger yet.

Here are three reasons to be positive on the stock.

1. Outstanding FY 2016 results

  • REA grew revenue by 20% to $630 million
  • Earnings before interest, tax, depreciation and amortisation (EBITDA) expanded by 22% to $347 million
  • Net profit after tax (NPAT) increased 16% to $215 million
  • Earnings per share (EPS) were up 16% to 214.5 cents per share (cps)
  • Total dividends per share increased 16% to 81.5 cps

2. Clear domestic market Leader

When it comes to its home market of Australia, REA is miles ahead of its nearest competitor, Domain – owned by Fairfax Media Limited (ASX: FXJ).

The group boasts 889 million page views per month; its nearest competitor has 176 million! Likewise, realestate.com.au attracts approximately 44 million visits per month; its nearest competitor attracts 20.5 million visits!

3. Expanding global footprint

REA has operated in a number of European countries for some years and these businesses are well established.

More recently, exposure to Asia has increased via its takeover of iProperty Group Ltd (ASX: IPP). iProperty has growing operations in Malaysia, Hong Kong, Macau, Singapore, Indonesia and Thailand.

REA also has exposure to the US property market via its investment in US-based digital real estate business MOVE Inc. MOVE achieved revenues growth of 27% to around $360 million and growth in unique users of 17% to 53 million.

Foolish Takeaway

Analyst consensus estimates show that REA Group is expected to earn 196 cps in the current financial year. (source: Reuters) This implies growth of approximately 17%.

With the share price up 25% in the past year to around $57, REA’s stock is trading on a forward price-to-earnings multiple of 29 times.

Considering the growth expectations and the quality of the group’s business model – which benefits from similar network effects to Carsales.Com Ltd (ASX: CAR) and SEEK Limited (ASX: SEK) – this is arguably a fair price to pay. 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. 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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