Following months of selling, top broker tips 45% upside for the REA share price

REA shares could be great value after recent weakness…

| More on:
Two businessmen look out at the city from the top of a tall building.

Image source: Getty Images

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

Key points

  • REA shares dropped to a 52-week low last week
  • This means its shares have now lost a third of their value in 2022
  • Goldman Sachs believes this is a buying opportunity for investors

On Friday, the REA Group Limited (ASX: REA) share price was sold off following the release of the property listings company's third-quarter update.

The company's shares were down as much as 9% to a 52-week low of $110.68 before recovering slightly to end the week at $112.15.

This means the REA share price is now down 35% since the start of the year.

Is the weakness in the REA share price a buying opportunity?

One leading broker that believes investors should be taking advantage of this weakness is Goldman Sachs.

According to a note from this morning, the broker has reiterated its buy rating with a trimmed price target of $164.00.

Based on the current REA share price, this implies potential upside of 46% for investors over the next 12 months.

What did the broker say?

Goldman Sachs acknowledges that REA missed its third-quarter estimates last week due to a greater than expected deterioration in the macro trends.

However, its analysts feel investors should look beyond this. They believe this is a short term headwind that will eventually turn into a tailwind for growth in the future.

The broker explained:

"REA revenues were -7% vs. GSe, given a greater than expected deterioration in the macro trends across its Rental (GSe c.10% of revenues) and Commercial and Developer businesses (14%) during the quarter. This offset the estimated +24% growth in its Residential 'For-Sale' business (+11% volume, +8% price and +5% depth).

Although this weakness is impacting FY22 earnings, as it relates to macro factors that will ultimately normalise in future periods, we believe it is only timing related, and will provide another tailwind to growth in future periods that will be impacted by macro weakness in 'for-sale' listings."

Furthermore, the broker believes there are other tailwinds that will be supportive of strong future growth.

"When combined with continued pricing tailwinds and strong depth uptake (across existing and new products), we remain positive on REA's ability to deliver sustainably strong earnings growth – forecasting +8% growth in FY23 (impacted by for-sale listings/India), accelerating to +11% in FY24."

All in all, the broker feels this makes the REA share price a very attractively priced option at the current level.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Broker Notes

ASX shares Business man marking buy on board and underlining it
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these shares.

Read more »

growth charts with small cap written on a sticky note
Small Cap Shares

Expert names 3 ASX small-cap stocks to buy in July

ASX small-cap stocks have greater ability to generate outsized returns, but can be difficult to discover.

Read more »

Worker on a laptop at an oil and gas pipeline.
Broker Notes

How much upside does Macquarie predict for Santos shares?

Let’s find out what the broker says.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Broker Notes

Does Macquarie rate REA Group shares a buy, hold or sell?

Let's have a look at what the broker thinks.

Read more »

A smiling woman walks along the street with shopping bags over her shoulder.
Broker Notes

3 quality ASX retailers to buy before reporting season: experts

Are you looking to add quality ASX retailers to your portfolio ahead of earnings season?

Read more »

Man with down syndrome working in supermarket.
Broker Notes

JP Morgan upgrades both Coles and Woolworths shares. But which is preferred?

Which company will perform better over the next 12 months?

Read more »

A smiling woman holds a Facebook like sign above her head.
Broker Notes

3 high-conviction ASX share picks from Bell Potter

These shares could be the best of the best right now according to the broker.

Read more »

A man in his office leans back in his chair with his hands behind his head looking out his window at the city, sitting back and relaxed, confident in his ASX share investments for the long term.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »