Why the REA Group Limited share price just hit a record high

REA Group Limited (ASX:REA) may benefit from growing property listings this spring.

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The REA Group Limited (ASX: REA) share price hit a record high of $68.34 today, despite the online real estate agency releasing no news to the market.

The company recently revealed it would write off $180 million of the value of its collection of, iProperty, South East Asia-focused online real estate portals it bought for a gross total around $750 million.

Investors appear to have shrugged off the underperformance of the iProperty business to focus on the rising amount of residential property (for sale) listings in Australia, with expectations that the spring selling season could see plenty more property come to market.

REA Group brings in revenues for every property listed and is also able to charge extra fees to advertise properties in prominent positions on its home or other webpages for example.

Property investors in particular are synchronised to interest rate cycles in deciding when to buy and sell properties and given that the RBA is likely finished cutting rates it's likely many property investors will look to cash in on their investments.

For the nine-months ended March 31 2017 REA Group posted operating income (EBITDA) of $286 million on revenues of $493 million, which were up 15% and 16% respectively.

It's this kind of consistent double-digit growth and high return on equity that means REA Group consistently trades on a high multiple of its earnings and is indicative of why its share price regularly hits new record highs. It currently sells for around 23x annualised EBITDA, with a modest 1.4% dividend yield.

Motley Fool contributor Tom Richardson owns shares of REA Group Limited. You can find Tom on Twitter @tommyr345 The Motley Fool Australia has no position in any of the stocks mentioned. 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 Bruce Jackson.

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