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3 reasons why REA Group is the best growth stock

Credit:Daniel Haller

REA Group Limited (ASX: REA) is the $7.2 billion owner of realestate.com.au and many other leading property websites. Over the last 10 years it’s been one of the best growth stocks on the ASX with its share price up over 882%.

I think it could continue to be one of the best growth stocks over the next five years. Here are three reasons why:

Dominant position

Realestate.com.au is a business with a good economic moat, attracting 2x more visitors — who spend 7x more time on the website’s buy section — compared to Fairfax Media Limited’s (ASX: FXJ) Domain.com.au. This makes more homeowners want to advertise on Realestate.com.au, which in turn attracts more buyers, and so-on.

Growing profits in slow times

Strong businesses are able to grow their profits even when economic conditions are seemingly working against them.

In its update to 30 September 2016, REA Group managed to grow its earnings before interest, tax, depreciation and amortisation by 9%, even though listings on the Australian site were down 14%.

Global reach

The biggest businesses in the world are always looking for ways to expand, by creating new products and moving into different countries.

REA Group is now operational in many countries outside Australia, including a 20% stake in Move Inc which is in the USA. It also bought iProperty Group which is the market leader in several South East Asian countries. These initiatives could fuel growth for the next few years.

Time to buy?

Considering its share price has declined by 17% since its all time high, I think now is a good time to buy and become a long term shareholder. Its shares are currently trading at 29.3x FY17’s estimated earnings with a grossed up dividend yield of 2.1%.

WIth a solid moat and growth potential, I'm sure if Warren Buffett was Australian he would love to buy REA Group shares, while he'd also love this stock.

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Motley Fool contributor Tristan Harrison 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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