Is the SEEK Limited (ASX: SEK) share price a buy?
Well, quite a lot of the answer to that question relies on what happens with the trade war. The Australian and Chinese job markets are obviously linked to the strength of the economies. If trade falters then there's going to be problems at the edge of the economies, or perhaps right through the middle.
Australia and China are two of the biggest revenue drivers for SEEK's top line with Seek.com.au and Zhaopin.
US President Donald Trump tweeted yesterday, "Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting." This could be a good sign for the end of the trade war and a resumption of normal world trade.
Since the start of the year the SEEK share price is up 31.8% as Australia's job market continues to remain strong.
A couple of months ago at the Macquarie Group Ltd (ASX: MQG) conference SEEK reminded investors that it has exposure to 18 countries with 2.9 billion people and exposure to around 26% of global GDP. There's a lot to like about SEEK's opportunity.
Apart from the valuation, the main thing holding me back from considering SEEK for my portfolio is that it's investing heavily, and has been for a while, but the profit isn't growing. Indeed, this can be seen in what the company is guiding for FY19.
In FY19 according to SEEK, revenue is expected to grow by 16% to 20%, earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to grow by 5% to 8% yet reported net profit after tax (NPAT) is likely going to be moderately below the reported NPAT of FY18.
Foolish takeaway
SEEK is targeting a $5 billion revenue opportunity in six years from now, which is exciting. But the profit has to start growing at a faster pace than revenue for SEEK to be worth the investment.
It's currently trading at 35x FY20's estimated earnings. This is too expensive for me, but a decline of employment market conditions could be the perfect time to buy.
