Are shares in REA Group Limited heading below $50?

Credit: Iain Mitchell

After trading over $65 earlier this year, shares in REA Group Limited (ASX: REA) have fallen nearly 20% to around $53 currently.

REA Group’s highly profitable platform,, has made it one of the best performing stocks on the ASX over the last decade. Anytime shares have dropped 20% in the past, it proved to be a good buying opportunity.

So, is this time any different?

The case can be made that competition for REA Group is now more intense.

Consistently generating a return on equity of well over 40% for many years has meant it has had a target on its back. Domain, owned by Fairfax Media Limited (ASX: FXJ) has recently managed to make up ground on some metrics, with higher earnings growth.

However, slowing growth for REA Group in Australia may be replaced by overseas growth if it can realise the potential of its international platform assets. It now has interests in US-based Move, Inc, as well as various European and Asian platforms through its acquisition of iProperty Group.

REA Group creates substantial value for buyers and sellers. Its fees are relatively small compared to the other costs involved with selling a property, particularly agents’ fees. This value gives it pricing power, and it has used this to its advantage in recent years by raising its fees and offering premium listing services.

It is currently trading at around 27.5x earnings estimates for 2017.

Looking at its key metrics, and considering its growth prospects, my view is that REA Group is one of the best businesses among the S&P/ASX 100 (Index: ^AXTO) (ASX: XTO) today.

It is the kind of company to buy for its growth and keep for its dividend.

Investors with the foresight to buy as recently as 2012 would have paid around $12.50 a share. In addition to the huge capital gains since then, the 2016 dividend of 81.5 cents per share would represent a 6.5% yield on cost for those investors.

Investors today should not expect future performance of a similar magnitude. However, analysts’ forecasts are for earnings and dividends to continue growing at above 20% for the next few years. This means the current yield of 1.5% could quickly become more appealing for investors looking for income.

In my view, the chance to invest near $50 represents a solid opportunity for long-term investors.

These Low Interest Rates Could Totally Devastate Your Retirement!

With global interest rates set to remain at these "emergency low" levels for years -- perhaps even decades -- unless you take decisive action NOW, your retirement could be seriously at risk.

Click here to learn how to NOT run out of money in retirement.

Motley Fool contributor Matthew Bugden 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.