I believe that high valuation multiple is due to scalability of REA's business model; they can grow business at rate that outpaces the rate of their costs ... and the latest announcement shows just that: cost up by 18%, everything else up by more than 20%. The 'jaws' are opening up - as they say they are working on.
The draw back of this well run, and good business, is the low dividend yield. Why spend $194 in order to get $1.87 (fully franked)? That's about 1% return on invested capital - and the investor has put his money at equity risk! I can only think of doing that in order to see growth in the company's business and hence share price.
If REA would not deliver these double digit growth rates, its SP would collapse. Even with these good results, the SP only is up now by 2.5%. It shows, Mr market was betting on something like this.
I keep holding, but will not increase my exposure (about 6% of my portfolio). I venture that REA is and will be the most dominant player over others in this market. From a "prudent" investment point of view (haha), I think that the higher the valuation, the lower its share in a portfolio should be.
REA Price at posting:
$194.68 Sentiment: Hold Disclosure: Held
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