The REA Group Limited (ASX: REA) share price has grown by 23% in 2017.
REA Group is the ASX-listed owner of realestate.com.au. It also has significant investments in several property sites in the USA and Asia.
Here is my bull and bear case for the REA Group share price over the next couple of years:
Bull case
REA Group is the clear market leader of property sites in Australia with realestate.com.au, Flatmates.com.au and realcommercial.com.au. Being number one attracts the most sellers and prospective buyers, which continues the cycle.
This dominance means that REA Group can implement price increases with little to no effect to volumes or profit. This is a great power to have and should generate strong organic revenue growth over the coming years.
REA Group's global reach means it can redirect profit back into whichever region it thinks needs investment, at a high return on invested capital.
Management just announced that it will be acquiring 80% of mortgage broker Smartline and creating a strategic partnership with National Australia Bank Ltd (ASX: NAB). This should add further earnings over the coming years.
Bear case
The first thing to note with REA Group is that it's trading at a high price/earnings ratio. It's currently trading at 38x FY17's estimated earnings, which means a lot of growth is factored into the current share price.
REA Group's success is linked to the Australian property market. If sentiment about the Australian property market were to turn negative it could hurt REA Group's earnings and the share price for a while.
The share price recently went down to $52 in February 2017 because the market was negative about REA Group's near-term prospects when it was revealed sales volumes were down.
Foolish takeaway
REA Group is one of the best businesses on the ASX in my opinion. However, no business is a buy at any price. Any buyers today will have to hold for the long-term to have the best chance of market-beating capital growth.
Personally, I would really like to buy REA Group shares, but only if the share price comes back to around $55.
