Is the REA Group Limited (ASX: REA) share price a buy?
The owner of realestate.com.au, realcommercial.com.au, flatmates.com.au and plenty of other property sites has been a strong performer for investors in recent months.
Over the past six months the REA Group share price is up by 46.7% thanks to the Liberal federal election win, the RBA interest rate cuts and the change of the APRA interest rate buffer.
Indeed, REA Group benefits from lower interest rates in two or three different ways. Lower interest rates is sending house prices up – allowing REA Group to charge higher prices. It also should encourage potential property sellers to actually sell, which would increase sales volume for REA Group's revenue.
Lower interest rates also mean that investors are going to price REA Group shares on a higher earnings multiple.
But is this high share price justified? It's now valued at 35x FY21's estimated earnings. This certainly isn't cheap, although it's nowhere near as expensive as other growth shares like WiseTech Global Ltd (ASX: WTC).
I believe that REA Group is one of the highest-quality businesses on the ASX with its strong pricing power, its market leadership, its growth potential and its various international property site investments. I'd prefer to own REA Group over Domain Holdings Australia Ltd (ASX: DHG).
Things are being online more in Asia and regions like India could be big earners for REA Group in the future.
One underrated element of REA Group is its growing dividend. It has increased its dividend each year since 2009.
Foolish takeaway
I'd say REA Group is more of a hold than a buy at this price. Its near term prospects have increased a lot but it looks like the share price has gone up even more. I'd really like to buy REA Group shares, but not at this price.
