Is the REA Group Limited (ASX: REA) share price a buy?
The owner of realestate.com.au and other leading Australian property sites like realcommercial.com.au and flatmates.com.au has seen its share price rise by 24% since the start of the year.
Not only has REA Group benefited from the recovery of the share market since Christmas 2018, but it has also grown a fair bit since the Federal election a month ago.
Why the REA Group share price could be a buy
Before the election investors were worried about Australian house prices, the economy, franking credits and so on. With negative gearing changes no longer on the cards, APRA's interest rate buffer change and the RBA cutting interest rates, REA Group could get see more properties come onto the market and perhaps REA Group could justify higher fees if property prices stop declining.
The market-leading position of REA Group allows it to implement impressive price rises to little detrimental effect, so far at least.
Another reason to like REA Group is its investments in overseas property sites in North America, India and South East Asia. Whilst they aren't profitable yet, in a few years they could all be decently sized contributors to REA Group's result.
Why the REA Group share price isn't a buy
One could say that the REA Group share price growth has more than made up for the improvement in the short-term outlook.
It's now priced at more than 33x FY20's estimated earnings. Whilst it isn't priced as expensively as the local WAAAX tech shares, it's still a fairly hefty price considering profit growth seems to be in the lower teens at the moment.
I also have a small question mark about whether it will be able to hold onto its superior viewing statistics compared to Domain Holdings Australia Ltd (ASX: DHG) over the medium-term. REA Group may not be able to command as much of a premium advertising price if there is an equal competitor.
Foolish takeaway
In this era of low interest rates I can see why some investors could justify investing at the current valuation, but I don't think I can without seeing that Australia's property market has truly stabilised.
