SEEK Limited shares drop lower: Should you buy the dip?

The SEEK Limited (ASX:SEK) share price has fallen 4% on Tuesday. Should you buy the dip?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The SEEK Limited (ASX: SEK) share price may have been one of the better performers on the market on Monday, but things have certainly taken a turn today.

At the time of writing the job listings company's shares are down over 4% to $19.65.

What happened?

Whilst the market and the brokerage community as a whole appear to agree that SEEK delivered a strong half-year result yesterday, its current valuation seems to be dividing opinion.

For example, a broker note out of the Macquarie Group Ltd (ASX: MQG) equities desk reveals that its analysts have downgraded SEEK from an outperform rating to neutral largely on valuation grounds. The broker has a price target of $20.35 on its shares.

Elsewhere, Deutsche Bank has retained its hold rating on SEEK's shares and increased their price target from $17.90 to $18.10, which is still significantly lower than its current share price.

And finally, a note out of UBS reveals that its analysts have not been swayed by yesterday's result. They have retained their sell rating and $16.00 price target. The broker likes the company, but thinks it is expensive and is holding out of for a better entry price.

Is it expensive?

Based on Macquarie's forecast for earnings per share of 61.1 cents in FY 2018, SEEK's shares are changing hands at approximately 32x trailing earnings.

Whilst this is by no means cheap, I wouldn't say it is astronomically expensive compared to the rest of the information technology industry.

Furthermore, I think SEEK has strong long-term growth potential that makes it deserving of such a premium.

As well as being a market-leader in the ANZ region, it has a China-based business leading the way in a market which could be many, many multiples bigger than the Australian market. So much so, I think this business alone has the potential to help SEEK deliver above-average earnings growth over the long-term.

Overall, I maintain my view that SEEK would be a great buy and hold investment option for investors willing to hold on for the long-term, and a far better option than the struggling Freelancer Ltd (ASX: FLN).

Motley Fool contributor James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia has recommended SEEK Limited. 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.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »