The REA Group Limited (ASX: REA) share price has done very well over the last year and five years, growing by 54% and 328% respectively.
REA Group owns a number of popular Australian websites including realestate.com.au, realcommercial.com.au and flatmates.com.au. It also has investments in Asia and North America.
The REA Group share price has done so well that it's worth considering whether today's share price would actually be a good value buy or not:
Buy case
The last decade has seen REA Group grow to dominate the property website world in Australia. Creating the leading portal means that it attracts the most sellers and the most buyers, which continues self-fulfilling growth. This allows REA Group to increase prices at a good rate.
The investments overseas could fuel REA Group's future growth. In Australia 66% of advertising spending is done online, whereas in Asia only 12% is done online. The USA segment reported revenue growth of 10% in FY17.
The move into financial services could be a smart and profitable move. In its first quarter update for FY18 the business reported that it was on track to earn revenue between $26 million to $30 million and earnings before interest, tax, depreciation and amortisation of $7 million to $11 million from the financial services segment.
Sell case
The main thing that would make me hesitate about buying REA Group shares is that it's now trading at 37x FY18's estimated earnings, which is quite a hefty valuation.
The property market looks as though it's really starting to slow down now, particularly in Sydney. If a lot less houses are put onto the market then this could hurt sentiment about REA Group, at least in the short-term, would could present a better buy price for potential investors.
Domain Holdings Australia Limited (ASX: DHG) has just listed on the ASX and could make life difficult for REA Group domestically. However, there is probably enough room in the online advertising market for both of them to succeed.
Foolish takeaway
Although I think REA Group will definitely grow into the current valuation, I think it's trading a bit too steeply for my liking to consider buying it at the moment. However, I'd definitely be interested once it gets back into the $50s.
