How far is the SP retracting? Intuitively, it has done already a lot of correction work:
Historically, the div yield of REA is in general between 1% and 1.5% over the last 10 years, reflecting a perception of a 'growth' stock.
At current price and with an ann. DH22 of 3.42 cents per share and a pay out ratio of 54%, the div yield is today 1.45% (3.42 * 0.54 / 126.48).
Against the historic backdrop, this is buying space. It is worth to consider pros and cons:
I didnt calculate growth in the earnings, i.e. kept earnings flat; i.e. underestimating the div yield.
However, if earnings will truly be flat in JH22, the SP will take a hit.
A rising interest rate environment make alternative investments (interest rate market) more competitive, thus reducing demand for shares and asking for an increased 'risk premium for equity'. This puts pressure on share prices in general.
How the changing housing market and rising inflation and mortgage rates impact REA's profitability and growth is unclear (to me) or at least debatable. Possibly neither here nor there.
The way REA corners its market allows the company to become more and more a 'price maker' than a 'price taker'. That's good for earnings and SP.
To keep the SP where it is and to get it rising again, REA has to grow earnings. If the is no earnings growth, the SP will collapse.
My feeling is overall that management is well equipped to grow the company (if not only at the expense of competitors). But this is a punt, and I have no way of objectifying this opinion.
REA Price at posting:
$126.48 Sentiment: Hold Disclosure: Held
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