REA Group Ltd (ASX: REA) shares have come under pressure this month.
So much so, the ASX 200 share is now trading 15% lower than its 52-week high.
Is this a buying opportunity for investors? Let's see what one leading broker is saying about the $31 billion property listings company.
Is this ASX 200 share a top buy?
According to a note out of Bell Potter, its analysts think that now could be an opportune time to buy REA Group shares.
The note reveals that the broker has retained its buy rating on its shares with a trimmed price target of $264.00. Based on its current share price of $235.62, this implies potential upside of 12% for investors over the next 12 months.
In addition, a modest 1.1% dividend yield is expected in FY 2025. If we include this, the total potential return increases to just over 13%.
What is the broker saying?
Bell Potter has been looking at recent industry data. It highlights that property listings are largely in line with expectations so far this year. It explains:
REA property data subsidiary, PropTrack, has outlined an -8% YoY national decline in new listings for the month of Feb, which was adversely impacted by an extra trading day in the pcp due to a leap year. REA last guided for a "flat-to-marginal" increase in FY25 (BPe: 2.5%) listings at its 1Q update and increased volumes by +5% during 1H25 which implies an expected decline in listings for 2H.
We estimate listings for REA are currently tracking at -3% for 2H25-to-date. Listings for March are cycling a soft Mar '24 (-9% nationally) before a difficult 4Q25 comping solid growth (+17% noting a soft base) in the pcp meeting a Federal election cycle.
Increasing competition?
The broker also notes that Domain Holdings Australia Ltd (ASX: DHG) has recently attracted interest from a deep-pocketed suitor. While this could ultimately lead to an increase in competition, it isn't overly concerned at this stage. However, it has reduced the multiples that it uses to value the ASX 200 share to reflect this risk. It said:
REA has recently benefitted from an ideal operating environment which coincided with an underperforming rival, but a significant global peer entering the market with a strong balance sheet carries a risk of disrupting REA's economic moat over the medium/longer-term through investment in marketing and platform.
Overall, the broker remains bullish and sees recent weakness as a buying opportunity for investors. Bell Potter concludes:
Following recent market pullback, potential for an increase in competition and early indicators for moderating volume growth, we revise the multiples applied in our TP to 28x and 52x, down from 30x and 57x (reflecting ~top-of-cycle) for our EV/EBITDA SOTP and P/E blended val's respectively.
We make no changes to our earnings forecasts but would anticipate some level of recovery in share price/relative valuation in the event the pending bid for DHG is unsuccessful. We remain Buy rated and continue to hold a positive long-term view of REA, with a cash flow profile able to sustain operational and capital expenditure to support its market leading position.
