Who'd have thought there was so much money to be made in real estate online advertising? Indeed, REA Group Limited (ASX:REA) continues to see its bottom line, as well as its share price, soar to new highs. For instance, in the last five years, shares in REA have delivered a capital gain of 562%. This easily beats the gains made by the ASX, which is up a lowly 26% in comparison.
However, there could be much more to come and shares in REA could be worth buying for these three reasons.
- Recent results showed that the company is making excellent progress. For example, net profit increased by 37% year-on-year, with the company continuing to invest in its international offerings. It confirmed the spending of around $50 million on new technology, products and initiatives, which include a new Chinese website. This shows that the company is attempting to diversify so that it does not rely solely on the performance of its Aussie property website. For long-term investors, this could prove to be a sound move.
- Growth prospects for REA Group over the next couple of years are simply stunning. For instance, the company is forecast to increase EPS by 35% in the current year, and by 20.3% in the following year. Both of these growth rates are well ahead of those expected for the wider economy and show that REA Group remains a true growth play.
- Higher earnings growth means that the company should be able to drastically improve its dividend payments. Clearly, it is no high-yielding stock, with shares in REA Group currently yielding just 1.4% (fully franked). However, dividends per share are set to grow almost in-line with the earnings growth rate and are due to be 61.5% higher in FY 2016 than they were in FY 2014.
- Of course, no stunning growth stock ever trades at a discount to the wider market. So, it is of little surprise to find that REA Group has a P/E ratio of 39.3. This is significantly higher than the ASX's P/E of 15.9. However, when the company's growth forecasts are taken into account, it generates a price to earnings growth (PEG) ratio of 1.43. This shows that the strong growth prospects for REA are on offer at a reasonable price, thereby highlighting the attractive price level currently occupied by the company's shares.
