MENU

Is REA Group Limited a good growth stock?

There are few shares on the ASX that have done better than REA Group Limited (ASX: REA) over the past 15 years. The REA Group share price has gone from $0.23 in April 2003 to today’s $77.02.

What does REA Group do?

REA Group is best known for owning the realestate.com.au website. If you’ve looked for a house to buy or rent then you’ll likely have used this market-leading site.

It also owns other popular sites like commercial property site realcommercial.com.au or flatmates.com.au.

Why has it done so well?

When REA Group first listed on the ASX it was a pretty new concept, all the property advertising had been done through newspaper listings. Australia became increasingly digital, more people used the internet and realestate.com.au became the clear leader.

There is nothing inherently special about realestate.com.au. It is a great website, it has a good reach on the internet – yet there are many competitors who also list property.

The key thing about why it’s done so well is because of a self-fulfilling circle. It has always been the biggest property site. Being the biggest means it has the most property listings, which attracts the most potential buyers to the site, which in turn attracts the most sellers.

The cost of an ad is so little compared to the property marketing budget, REA Group can implement strong price increases which mostly falls to the bottom line.

How will REA Group keep growing?

REA Group has done well in recent years because it has encouraged property vendors to pay more for premium ads, which gives the property more exposure and gives REA Group a lot more money for the same property. Property owners may have to work even harder with advertising to sell in a property downturn.

The company has also been making investments into overseas property sites which could drive future profits. It has investments in North America, India and South East Asia.

It has also started offering loan services through its site, which could turn into a nice portion of earnings in time.

Risks?

As I mentioned earlier, there are lot of theoretical competitors to REA Group. If any of them manage to take market share away from REA Group then it could lose a lot of its advantages.

A property downturn could make investors turn negative about REA Group, but that could present an opportunity for investors who want to buy shares.

Foolish takeaway

REA Group has a good balance sheet and it’s currently trading at 30x FY19’s estimated earnings. REA Group is quite expensive for how much it’s growing each year, but the long-term compounding of earnings should make REA Group one of the best blue chips to own over the next five years.

Want more growth ideas? You should definitely read about these top shares.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group 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 Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.