The REA Group Ltd (ASX: REA) share price has fallen by approximately 35% in the past year. Not many S&P/ASX 200 Index (ASX: XJO) shares have fallen that far over the same time period.
I get excited when high-quality businesses fall that far because it could be a rare opportunity to buy part of a great business.
REA Group describes itself as a multinational digital advertising business, specialising in property. It operates Australia's leading residential and commercial property websites – realestate.com.au and realcomercial.com.au, as well as the leading website dedicated to share property, Flatmates.com and the property research website property.com.au.
The company also owns Mortgage Choice, an Australian mortgage broking franchise group, PropTrack, a leading provider of property data services, Campaign Agent, Australia's leading provider of vendor-paid advertising finance solutions to the Australian real estate market and Realtair, a digital platform providing technology for the real estate transaction process. It also has investments in Simplicity Loans and Advisory, Arealytics, Athena Home Loans and Planitar.
As you can see, REA Group has a strong presence across the real estate sector.
Image source: Getty Images
Has recent financial performance been compelling?
The company delivered a solid set of numbers during the FY26 result.
Australian revenue grew 11% to $1.7 billion, Australian operating profit (EBITDA) before associates rose 13% to $1.1 billion, net profit after tax (NPAT) rose 15% to $650 million and earnings per share (EPS) climbed 15% to $4.93.
The company noted a number of highlights for realestate.com.au, with 12.7 million people visiting the portal on average each month. It also said it receives 146.4 million average monthly visits, which is 104.5 million more monthly visits than the nearest competitor on average.
It also noted 2.9 million people visited realcommercial.com.au per month on average, 1.8 million more people than the nearest competitor.
FY27 could be a challenging year for the company amid all of the changes to property-related taxes.
It said that new national buy listings are anticipated to be "flat to down low single-digits" in FY27. July listings were 2% lower and in line with the eight-year average. However, combined Melbourne and Sydney listings declined by 13%, while Brisbane, Perth and Adelaide increased by 13%.
Despite that headwind, the company continues to target operational margin expansion, which I'd say is a positive development.
Management expects a low double-digit controllable residential buy yield, excluding the impact of the geographical mix, driven by an 80% premium price increase and growth in add-ons.
So, whilst the number of listings is challenging, price rises are helping offset the headwinds.
According to Commsec's projection, the business is now valued at just 25x FY27's estimated earnings. Commsec forecasts suggest the company could grow its EPS by 13.75% in FY28 and another 15.7% in FY29.
Is the REA Group share price a buy?
According to CMC Invest, there have been 10 analyst ratings on the business within the last three months. Four of those ratings were a buy, five were a hold and one was a sell.
The average price target of those analyst ratings was $188.50, which implies a possible rise of 27% over the next year from where it is at the time of writing. In other words, it could be an underrated opportunity, so it could be one to take a closer look at.
