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Is the REA Group Limited (ASX:REA) share price a buy?

In roughly two months the share price of REA Group Limited (ASX: REA) has fallen approximately $20, representing a decline of around 22%.

REA Group has been hit with a double whammy. It’s facing the negative contraction that all high price/earnings shares are currently suffering. From Altium Limited (ASX: ALU) to WiseTech Global Ltd (ASX: WTC) there have been some swift declines to growth shares due to bond rates rising.

I’m not sure why this is suddenly a surprise to some investors as the US Fed has been increasing rates for a while now and has given medium-term forecasts of increases for a long time too.

The other problem that REA Group faces is a tough housing market. REA Group optimists have pointed out that houses being on the market could mean more advertising revenue for REA Group. However, the falling number of listings is certainly a negative.

Sentiment is certainly turning against property-related businesses. Domain Holdings Australia Limited (ASX: DHG) recently revealed that total revenue so far in FY19 was down 1%. Investors could easily assume that REA Group’s income growth may also face headwinds.

It must be said that REA Group still has an enviable position in the real estate world. Realestate.com.au is the clear market-leader and it can increase its prices at a strong rate regularly due to its brand power. It pays to be number one.

I thought that the REA Group share price of above $90 was getting far too ahead of itself, however a low $70s price looks much better. In-fact, the fall of the share price may now safely reflect the increased risks.

Foolish takeaway

REA Group is now trading at 29x FY19’s estimated earnings. Although this is still not too cheap I think it represents a decent long-term buying opportunity, particularly if REA Group’s overseas investments in the US and Asia turn into sizeable profit centres.

If it falls to around $65 or below then I’ll be very interested in buying an initial position.

For now, I’ve got my eyes set on one of these top growth shares which has long-term growth potential thanks to Australia’s ageing tailwinds.

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Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of Altium and WiseTech Global. 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.

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