The share price of SEEK Limited (ASX: SEK) has increased by a quarter since the start of the calendar year, making it one of the best performing large caps on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO).
That should give shareholders plenty of reasons to smile even though the returns of the online jobs classifieds company are a little behind its peers like Carsales.Com Ltd (ASX: CAR) with a 30.8% gain and REA Group Limited (ASX: REA) with its 44% surge.
But is the party for Seek coming to an end even as management issued a profit upgrade at its annual general meeting yesterday?
There are reasons to think the stock will at best be treading water in the short to medium term after management upped its earnings before interest, tax, depreciation and amortisation (EBITDA) growth to ~13% from ~10% for FY18, thanks to its ANZ Employment, OES and Seek Asia businesses.
However, it kept its net profit constant due to significant increases in below-the-line costs, according to Citigroup. These costs include share-based payments, depreciation, amortisation, and interest charges.
What's more, the broker notes that capital expenditure is increasing and Seek will need to increase EBITDA by 6% just to keep net profit flat in FY19.
The broker also suspects that Seek has skewed its guidance by cutting back on operating expenses in the short-term to offset the below-the-line costs, and is urging investors to sell the stock as it is substantially above its price target of $14.25.
Sure, not all brokers have such a dim view on the stock.
Macquarie Group Ltd (ASX: MQG) is still bullish on Seek as it notes the company's strong operational outlook from "continued cyclical strength of the Australian market with job ad volumes up 13.4% financial year to date (FYTD)".
Further, the strong job ad volumes have persisted and the broker believes November will show another strong month.
However, it's interesting to note that Macquarie's 12-month price target on Seek is $18.70, which is where the stock finished yesterday. The broker has kept its "outperform" call on the stock.
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