Why the Carsales.com Ltd share price is sinking today

Is the Carsales.com Ltd (ASX:CAR) share price good value?

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Shares in one of Australia's premier digital businesses Carsales.com Ltd (ASX: CAR) have fallen 2.5% this morning after the business announced that its long-serving and influential chief executive, Greg Roebuck, is to retire in March 2017.

Given that Roebuck has been in the driving seat throughout Carsales' impressive growth phase since 2002, I'm not surprised investors have taken the news with disappointment this morning. During Roebuck's time the business has moved from little more than an online startup to a Top 100 ASX company and rewarded shareholders big time.

Roebuck is said to be stepping down from Carsales completely rather than taking on a director role and will hand the reins over to Cameron McIntyre who is currently Carsales' chief operating officer. The new boss has some work on his hands though with net profit up 6% in financial year 2016 and its substantial investment in Asia-focused iCar Asia Ltd (ASX: ICQ) turning sour recently.

Selling for $10.95 this morning Carsales trades on around 23x analysts' estimates for earnings per share of 40.5 cents in financial year 2017. To me this looks on the expensive side when you consider that the company's core Australian business is seemingly maturing, while its overseas interests hold potential, but not much else for now.

Still it looks one of the better quality businesses on the ASX, although in the internet classifieds space I would still strongly prefer REA Group Limited (ASX: REA) as my number one pick.

REA Group also looks expensive at $56.24, although this reflects its high quality, return on equity strong growth rates and dominant competitive position. Before buying this stock I would probably wait until it delivers its half-year results in February, as there's a chance the share price may lose some steam then.

Motley Fool contributor Tom Richardson owns shares of REA Group 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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