Australia is one of the biggest countries in the world by landmass, but it has a much smaller population than most other western countries. Most businesses rely on the population size as the main reason for how potentially large its market can be. That's why American companies that have conquered their domestic market are so big, there's over 300 million people.
When Australian companies have reached saturation point, the next place to look for growth is overseas. Otherwise, growth will be limited to population growth and perhaps price increases.
Faced with a choice of investing in our big banks and retailers or smaller businesses growing overseas, I'd always pick the smaller businesses like these:
REA Group Limited (ASX: REA)
REA Group is well known as the owner of Australia's leading property site, realestate.com.au. It also owns a few other Australian property sites like realcommercial.com.au and flatmates.com.au.
It is the international investments that REA Group has made over the years that could turn into a global property site powerhouse. It has a stake in the US site realtor.com, in India with PropTiger and across the Asian region with iProperty. In its half-year result REA Group said Asian revenue grew by 19% to $22.8 million and Asian earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 70%.
REA Group is currently trading at 33x FY19's estimated earnings.
Seek Limited (ASX: SEK)
Seek operates Australia's biggest job portal site. But it is turning into much more of a business support company than that these days, with human capital management and education offerings.
It has stakes in many leading employment sites in various countries including China, Brazil, Mexico, Africa and across South East Asia. The Chinese site in-particular, Zhaopin, offers Seek an opportunity of almost seven times the size of its domestic site.
Seek is trading at 30x FY19's estimated earnings.
As the name suggests, this company runs Australia's largest car sales website.
It is also a leading automotive classifieds provider in Mexico, Latin American and South East Asia. In its recent half-year result to 31 December 2017 its international division increased revenue by 66%.
As more of the car sale transactions in those regions move online, it should turn into higher profits for Carsales.
It's currently trading at 23x FY18's estimated earnings.
Foolish takeaway
All three businesses have done extremely well for shareholders since listing. At the current prices it's hard to argue that any of them are big buys. I think REA Group offers the best profit growth potential, but it's trading the most expensively. Therefore, it would probably be better not to buy at today's prices.