If there is one thing that the August reporting season has driven home to investors it is that ASX-listed companies in general are struggling to produce growth in revenues and earnings.
The past month has also been a period in which investors have been harshly reminded that on a global basis markets are concerned about economic growth rates too!
Three stocks which have long been considered high growth stocks and priced accordingly are online classified advertising operators SEEK Limited (ASX: SEK), REA Group Limited (ASX: REA) and Carsales.Com Ltd (ASX: CAR).
While there fundamental performance continues to be better than your average listed company, it is interesting to note that since the start of calendar year 2015 these three stocks have underperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) which has fallen 6.8%. In comparison, Seek, REA Group and Carsales.Com have slumped by 29.8%, 8.5% and 7.8% respectively.
Results Recap
For the twelve months ending June 30:
- Seek reported a 20% jump in revenues and a 6% rise in net profit after tax (NPAT).
- REA Group reported a 20% increase in revenues and a 24% surge in NPAT.
- Carsales.com reported a 32% uplift in revenues and an 8% gain in NPAT.
According to forecast data provided by Morningstar, Seek, REA Group and Carsales.Com should all post solid earnings per share (EPS) growth in the current financial year with EPS respectively of 57.1 cents per share (cps), 174.7 cps and 46.5 cps.
Based on these forecasts, Seek, REA Group and Carsales.Com are currently trading on forward price-to-earnings (PE) ratios of 21.2x, 23.7x and 20.7x respectively.
While multiples of over 20x may initially appear high, when the quality, growth potential and relative-to-market multiple factors are taken into account, the recent underperformance of these top stocks could be presenting an opportunity for long term investors.
