Is Now An Opportune Moment To Examine REA Group Limited (ASX:REA)?

Let's talk about the popular REA Group Limited (ASX:REA). The company's shares received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to AU$143 at one point, and dropping to the lows of AU$130. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether REA Group's current trading price of AU$143 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at REA Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for REA Group

What's The Opportunity In REA Group?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 51.68x is currently well-above the industry average of 30.93x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, REA Group’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach levels around its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

What kind of growth will REA Group generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 44% over the next couple of years, the future seems bright for REA Group. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in REA’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe REA should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on REA for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for REA, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Diving deeper into the forecasts for REA Group mentioned earlier will help you understand how analysts view the stock going forward. At Simply Wall St, we have the analysts estimates which you can view by clicking here.

If you are no longer interested in REA Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.