It's a good result in my book. REA has a history of consistently making money over the years. It's a business one arguably should have.
The question is: How much should one pay for it?
The long term average Earnings Multiple is ca. 44; I guess / estimate EPS for FY22 at $3.42 (assuming no further growth, but also no weaker 2nd half). The crudely expected SP, then, should be
$150.48 (i.e. 44 x #3.42).
So, trading at trailing multiples of 66 as recently is now perceived as too high. However, if Mr. Market is again prepared to pay multiples of 66, then the SP could reach
$225.72 (66 x $3.42). Too achieve this lofty SP, market expectations need to be:
- Higher interest rates bring more properties onto the market (sell now before it goes down further); don't know about that
- Interest scenario may slow the growth of REA, but not destroy it. But even in an inflationary setting, home ownership is a valid hedge.
- Home purchases or sales are not going away - neither short, medium or long term
For a stock like REA, anything below a multiple of 40 should be an entry point.
GLTAH
(20min delay)