Amongst all of the current market turmoil surrounding the coronavirus, and its share price dropping by 16% since the market correction began on February 20, is the REA Group Limited (ASX: REA) share price a buy right now?
How has REA Group performed recently?
In REA Group's recent financial results for H1 FY2020, revenue from core operations declined by 6% to $440.3 million, however there was a 4.6% lift in Asia revenue to $27.2 million.
Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 7%, while net profit declined even more by 13% to $152.9 million.
I think these results are actually very solid in challenging market conditions that were experienced over the second half of 2020. Even though earnings declined, REA is still a highly profitable company with a very strong business model, and strong medium to long term growth prospects.
It is interesting to note that despite all of the share market turmoil with concerns about the worsening impact of the coronavirus, the residential property sector has shown a significant degree of resilience.
According to recent figures from CoreLogic, house prices grew strongly by another 1.1% in February, with Sydney house prices up 1.7% and Melbourne house prices up 1.2%. The recent interest rates cut by the RBA also will add more fuel for further price rises over the months to come.
With rising house prices REA Group is better placed to gradually increase its advertising prices over time which should flow through to higher revenues.
REA Group continues to outperform its smaller rival, Domain Holdings Australia Ltd (ASX: DHG), which in my view doesn't have any real strategic differentiation over REA Group, and also suffers from no exposure, which is where the greatest opportunities lie.
While growth has slowed down for REA Group in its more mature Australian market, as it has for Domain, REA Group is able to push up its growth rate through its less mature and faster-growing overseas divisions.
Is REA a buy right now?
I believe that the REA Group is well place to capitalise from the momentum of the improving residential housing sector, and is still well-positioned for strong long-term growth to its entrenched market position and growing international divisions.
Although REA Groups's share price has dropped by 16% since February 20, when the current market correction on the ASX began, and it trading at a more favourable price-to-earnings ratio (P/E) of 46, I think it is still looking a bit on the expensive side at current prices.
Also, even with the current price decline, the REA share price has still seen very strong gains since the beginning of 2019.
I think REA Group Limited is a great company to buy and hold at the right price, however right now I would be looking elsewhere.
