The REA Group Limited (ASX: REA) share price is up 3% to $75.50 today despite the online property classifieds business that operates realestate.com.au releasing no specific news to the market.
Australian property prices have been falling since hitting a peak in July 2017 over which time the REA Group share price has climbed from $69.08 on July 28 2017 to $75.50, although it go as high as $93 in August 2018 despite a year of reported property price falls in Melbourne and Sydney.
For the quarter ending September 30 2018 REA Group posted free cash flow of $52.1 million on revenue of $221.9 million, which were up 17% and 52% respectively on the prior corresponding quarter.
This was an impressive result given the soft housing market conditions and demonstrates how REA Group is able to grow revenues through skilful management and a strong sales team.
Some of the revenue growth has come about as it's easier for REA Group's sales team to sell "depth" or "premiere" listings to vendors' agents, as it is now much harder to sell your property than it was in the boom-time years of 2012-2017.
While the News Corp (ASX: NWS) majority-owned REA Group is trading flat over the past year, rival Domain Holdings Australia Ltd (ASX: DHG) has lost one third of its value to go from $3.30 per share to $2.20 today.
Domain remains majority owned by the newly-merged Fairfax Media and Nine Entertainment Co Holdings Ltd (ASX: NEC), which is hoping to cross sell products on the site while extending its reach to the Australian public.
According to Reuters, the average analyst consensus is for REA Group to post $2.55 in earnings per share over FY 2019 which would represent growth of 20% on the $2.12 delivered in FY 2018.
REA Group looks on track to meet these forecasts which would put it on 29x forward earnings with an expected (estimated) dividend yield in the region of 1.8% based on forecasts for dividends around $1.38 per share over the fiscal year.
REA Group is a quality business, although I can't bring myself to buy more shares at today's valuation and would rate the stock a hold for now.
However, I'd still rate it a better option on current valuations than rivals SEEK Limited (ASX: SEK) and Carsales.Com Ltd (ASX: CAR). In my opinion SEEK faces problems in 2019 and 2020 as Australian hiring growth slows across the board, while Carsales faces growing competition from digital giants like Facebook Inc.
