Trade Me Group Ltd. (ASX: TME) is one of those companies that investors overlook because it operates in New Zealand. The same market sector in Australia is dominated by existing players like eBay, Carsales.Com Ltd (ASX: CAR) and REA Group Limited (ASX: REA). Trade Me does not face these competitive headwinds in the New Zealand market.
Trade Me Group is an online marketplace and classified advertising platform in New Zealand, with auctions and fixed price sales for new and used goods. It also has automotive, real estate and employment businesses as well as web businesses specialising in accommodation, dating and travel.
Investors would do well to look in more detail at the business. With recent acquisitions, it now dominates general classified advertising and is also growing its market share in auto sales and housing.
Having just spent an extended holiday in New Zealand, it's obvious what a strong brand name and market dominance can do in this sector. Whether you are looking for a car to buy, a holiday house to rent or just to sell some old toys, Trade Me is where people go to sell and buy.
The fact that it has been able to compete effectively with eBay shows how powerful this branding and national loyalty can be. New Zealanders are proud of the fact that they have their own 'home grown' online trading platform.
Trade Me Group has also developed apps for the mobile market. As a result it is reporting very fast growth in the amount of business done via mobile devices as opposed to computers. This demonstrates an awareness and ability to take advantage of technological change.
That is all very well, but what about the financials of the company? Trade Me currently trades for around $3.60. This equates to a price-to-earnings ratio of about 18.7, which is certainly not cheap. The attractive side of the business is the cash flow it generates, this shows up as a fantastic operating margin of over 60%. The price-to-sales ratio is also very healthy.
I believe Trade Me enjoys a significant competitive advantage by virtue of established market share and national loyalty.
By my calculations, Trade Me is currently priced near its value range. Any softness in the price will encourage me to seriously consider taking a position.
