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Credit Suisse: Time to sell Carsales.Com Ltd

The Carsales.Com Ltd (ASX: CAR) share price fell 5% to $14.25 after researchers at broker Credit Suisse reportedly downgraded their rating on the stock to “underperform”.

The decision to downgrade was reportedly based on valuation grounds with analysts believing Carsales’ growth outlook is not in line with its valuation.

At the end of last year Carsales completed its acquisition of South Korea’s SK Encar and at the time boasted this was part of its long-terms strategy to be the world’s leading online auto-classifieds business.

Central to this ambitious strategy is idea that it can replicate the success of its dominant carsales.com website in Australia in large global markets.

In FY 2017 the digital player reported an adjusted net profit of $119.1 million on revenue of $372.1 million. Adjusted earnings per share came in at 49.4 cents which means the group trades on 29x adjusted trailing earnings.

Despite today’s price falls, digital leaders like Carsales, SEEK Limited (ASX: SEK) and REA Group Limited (ASX: REA) have market-demolishing track records.

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Motley Fool contributor Tom Richardson owns shares of REA Group Limited and SEEK Limited. The Motley Fool Australia has recommended carsales.com Limited, REA Group Limited, and SEEK Limited. 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.

Motley Fool contributor Tom Richardson owns shares of REA Group Limited and SEEK Limited. The Motley Fool Australia has recommended carsales.com Limited, REA Group Limited, and SEEK Limited. 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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