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Is REA Group the best growth share to buy at today’s share price?

Tristan Harrison
digital property advertising, marketing, for sale, property

Is REA Group Limited (ASX: REA) the best ASX growth share that you can invest in for your portfolio today?

It’s quite hard to find good value growth shares at the moment. Low interest rates have driven up investor interest in many of the top ASX shares for growth or yield.

What is REA Group?

It’s a property portal business that owns some of the leading property digital sites including realestate.com.au, realcommercial.com.au, Spacely and Flatmates.com.au. It also owns other property-related Australian businesses such as Smartline Home Loans and property data business Hometrack.

What’s happening recently?

REA Group’s success is quite dependent on the success and activity of the Australian property market. REA Group earns a fee whenever a property is listed for sale on realestate.com.au. More properties for sale means more fees and higher property prices means REA Group can probably charge a higher price for the advertising.

After a rough period during the financial services royal commission, Australian house prices are rocketing again after lower interest rates from the RBA, the Liberals winning the election and APRA changing lending requirements for banks. 

However, listing volumes were lower in the September 2019 quarter, causing core earnings before interest, tax, depreciation and amortisation (EBITDA) to fall by 14% and free cash flow to drop by 20%.

But the rising property prices could cause homeowners to decide to sell their property now that the Christmas and New Year holidays have finished.

Over the longer-term REA Group’s stakes in leading property sites in Asia and North America could be future profit centres.

Is the REA Group share price a buy?

Not only has the falling interest rates helped house prices, but it has boosted the valuation of top growth shares like REA Group. I’d certainly prefer it compared to Domain Holdings Australia Ltd (ASX: DHG). 

It’s a great business but at a share price of $113 it’s now trading at 39x FY21’s estimated earnings. This seems like a high price in the shorter-term unless REA Group can achieve strong compound profit growth over the next 18 to 24 months.

The post Is REA Group the best growth share to buy at today’s share price? appeared first on Motley Fool Australia.

I think I’d rather invest in these top ASX shares for my portfolio compared to REA Group.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020