The SEEK Limited (ASX: SEK) share price has been a very strong performer over the last few months.
The job listings company's shares are up over 93% from their March low and are now trading within sight of their 52-week high.
Is it too late to buy SEEK shares?
While I still think SEEK shares would be a great long term option for investors, they certainly aren't the bargain buy they were a few months ago.
One leading broker that thinks its shares have now peaked is Goldman Sachs. This morning the broker retained its neutral rating and lifted its price target on the company's shares by 14% to $20.20.
This price target implies potential downside of 7% based on the current SEEK share price.
What did Goldman Sachs say?
Overall, the broker is actually very positive on SEEK's outlook and is forecasting a swift rebound in earnings before interest, tax, depreciation, and amortisation (EBITDA) in FY 2021.
It expects the pandemic to lead to a 10% decline in EBITDA in FY 2020 to $409.9 million. However, in FY 2021 it is forecasting a 16% jump in EBITDA to $475.7 million.
After which, it expects its strong growth to continue in FY 2022, with EBITDA lifting another 23% to $585.2 million. This is despite a potential reduction in listing volumes in the ANZ market due to budget constraints.
Goldman commented: "Based on a number of discussions, we believe most recruiters will attempt to maintain, or only marginally increase total budgets (at least initially) despite the c.50%/c.25% price rises in FY21/22 from SEK. We estimate that should total recruitment budgets increase 10% each year, these contracts would result in a decline of total ANZ volumes of -12%/-5% in FY21/22, but result in yields improving +16%/+7% (all else equal)."
Another driver of earnings growth is expected to be the Asia Pacific & Americas (AP&A) business.
Goldman notes recent commentary which indicates that management has an increased focus on operational efficiencies for the AP&A business and is aiming to hold the total cost base flat into FY 2021.
"This is pleasing, given years of significant investment has limited EBITDA growth, despite the strong revenue performances," it explained.
So why is Goldman Sachs not buy-rated?
SEEK's valuation appears to be an issue for the broker and the reason it doesn't have a buy rating on its shares right now. At 18.4x FY 2021's EV/EBITDA, its valuation appears a bit too rich for this broker.
One broker that would disagree is Credit Suisse. Late last month its retained its outperform rating and $24.00 price target on SEEK's shares.
At this point, I would have to side with Credit Suisse and be a buyer of its shares. I think its very positive long term outlook justifies the premium its shares trade at today.
