Why now could be a great time to invest in this top ASX 200 share

This stock continues to impress with its long-term growth.

| More on:
Happy couple hugging in their new house around cardboard boxes.

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

The S&P/ASX 200 Index (ASX: XJO) share REA Group Ltd (ASX: REA) has been one of the best long-term performers on the ASX.

The ASX property share recently reported its FY24 result, which included a number of positives. Revenue rose 23% to $1.45 billion, earnings per share (EPS) grew 24% to $3.49, and the full-year dividend was hiked by 20%.

REA Group may be best known for owning realestate.com.au, but it also owns several other Australian businesses in the property industry, including realcommercial.com.au, CampaignAgent, the data and insights business PropTrack, and the mortgage broking business Mortgage Choice.

I've been a fan of this company for a long time. Let's discuss why I think it can continue to perform well.

Strong market share

Investors often discuss the importance of economic moats, where a business has a competitive advantage that enables it to make good profits. REA Group has an exceptionally strong economic moat.

REA Group's market-leading realestate.com.au business receives an impressive four times more monthly visits, on average, than its nearest rival. It says that 10.8 million people visit each month on average, with 5.7 million people exclusively using realestate.com.au.

This strong market position allows the ASX 200 share to implement price increases with little to no detrimental effect despite there being competitors offering a similar service for a cheaper price.

For example, in FY24, residential revenue benefited from a 13% average national price rise. The commercial segment experienced an 11% price rise, and the rental segment experienced an 8% average price rise.

Revenue growth is a strong driver of profit growth.

Operating leverage

One of the most important elements for a business to outperform the market, in my opinion, is its ability to grow profit margins.

Investors usually value a company based on its profit potential. If profit can grow faster than revenue, this could lead to pleasing shareholder returns.

As I pointed out earlier, the ASX 200 share's revenue grew 23%, and the EPS rose by 24% in FY24.

In FY25, the company is targeting further profit margin improvement.

If its revenue keeps rising faster than expenses over the rest of the decade, I think it could become a much larger company, particularly if it's successful overseas.

India and other international markets

REA Group has investments in Move Inc (a 20% stake) and PropertyGuru (a 17.2% stake) which gives it exposure to digital property advertising in North America, Singapore, Vietnam, Malaysia and Thailand. Those are compelling markets for REA Group to have exposure to.

But, the most exciting international segment, in my opinion, is India.

A population of more than 1 billion people that is rapidly adopting digital products and services is a huge potential market for REA India, which has the number one position in the country.

In FY24, REA India saw revenue growth of 31% to $103 million and app traffic growth of 39%.

If the ASX 200 share can start generating meaningful profit margins in the country, the company's overall earnings outlook could significantly improve. According to the current forecast on Commsec, the REA Group share price is valued at 40x FY26's estimated earnings.

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

More on Opinions

A businessman hugs his computer and smiles.
Opinions

If I could only own one ASX 200 share for the rest of my life, it'd be this one

This is one stock I expect to own forever.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Brokers rerate 3 leading ASX 200 tech stocks

Experts reveal their ratings on the ASX 200 tech sector's three biggest companies.

Read more »

Person holding a blue chip.
Opinions

Buy alert! 2 ASX 200 blue-chip shares worth a look now: expert

Dylan Evans from Catapult Wealth has identified two blue-chip shares that he thinks are good buys today.

Read more »

Two happy woman on a couch looking at a tablet.
Opinions

Why I'm excited to see the results of these ASX 200 shares

These stocks could reveal very interesting insights.

Read more »

Young male investor smiling looking at laptop as the share price of ASX ETF CRYP goes higher today
Opinions

Why I just bought this 5.2%-yielding ASX dividend stock and plan to buy even more

This business is one of my favourites for dividends and total returns.

Read more »

A young female investor with brown curly hair and wearing a yellow top and glasses sits at her desk using her calculator to work out how much her ASX dividend shares will pay this year
Opinions

Why I'm still investing in ASX shares during tariff uncertainty

There are a few reasons why I plan to continue investing even during uncertainty.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Opinions

Why I'm buying more of these 2 ASX stocks ahead of earnings season

I've been excited about buying these investments.

Read more »

Business women working from home with stock market chart showing per cent change on her laptop screen.
Opinions

1 month until ASX earnings season begins: how I'm preparing

It’s almost reporting time. Here’s what I’m looking at.

Read more »