Yahoo Finance REA Group Limited (ASX:REA) And The Tech Sector Outlook 2018
REA Group Limited (ASX:REA), is a AU$11.30B mid-cap, which operates in the software industry based in Australia. The past two decades have experienced unprecedented changes in technology, and the next decade looks equally drastic. Tech analysts are forecasting for the entire software tech industry, a highly optimistic growth of 52.82% in the upcoming year , and an enormous triple-digit earnings growth over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the Australian stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether REA Group is lagging or leading in the industry. View our latest analysis for REA Group
What’s the catalyst for REA Group’s sector growth?
US-based mega-competitors have been, and continue to be, the key drivers of industry growth. Many tech companies are repositioning themselves by focusing on high-growth areas such as IBM’s artificial intelligence play in Watson and Adobe’s shift to marketing its product for cloud computing. In the previous year, the industry saw growth in the thirties, beating the Australian market growth of 9.32%. REA Group lags the pack with its negative growth rate of -80.88% over the past year, which indicates the company will be growing at a slower pace than its software peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of over 100% in the upcoming year.
Is REA Group and the sector relatively cheap?
The software tech sector’s PE is currently hovering around 28.96x, above the broader Australian stock market PE of 17.17x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a lower 8.72% compared to the market’s 11.75%, which may be indicative of past headwinds. On the stock-level, REA Group is trading at a higher PE ratio of 221x, making it more expensive than the average tech stock. In terms of returns, REA Group generated 5.97% in the past year, which is 2.74% below the tech sector.
Next Steps:
REA Group’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If REA Group has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other tech companies. However, before you make a decision on the stock, I suggest you look at REA Group’s fundamentals in order to build a holistic investment thesis.
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Historical Track Record: What has REA’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of REA Group? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
