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REA and Woolworths Group Ltd: 2 ASX shares to dig into

The Rea Group Ltd (ASX:REA) share price has jumped 9.4% since the start of the 2024. It's probably worth asking, 'is the REA share price cheap?'
The Rea Group Ltd (ASX:REA) share price has jumped 9.4% since the start of the 2024. The Woolworths Group Ltd (ASX:WOW) share price is tracking 13% off its 52-week lows.

REA share price in focus

Founded in 1995, REA Group is a Melbourne-based real estate advertising company that is majority owned by News Corp. In Australia, it operates through its Realestate.com.au platform.

REA Group operates on a global scale and now operates property websites in around 10 countries used by some 20,000 agents. In a typical month, the core Australian website gets over 55 million visits. The business is broken down across geographic lines, with Australia taking the lion’s share of revenue. Within Australia, REA makes money by listing properties for sale or rent (i.e. the agent uses REA’s website to show properties, which the property owner is on the hook to pay). It also makes money from financial services (e.g. mortgage broking), but this is a much smaller part of the business.

Property websites such as Realestate.com.au attract both buyers and sellers and aim to simplify the process resulting in an efficient and stress-free transaction. We believe its competitive advantge is that of any other established platform: network effects and efficient scale. In other words, Domain (the #2 player) is meaningfully behind REA in users and views, which means REA can continue to charge more.

WOW shares

Founded in 1924, Woolworths is a retail operator in Australia and New Zealand with over 3,000 stores and over 100,000 employees. It is currently the Australia’s largest company in terms of revenue and market share.

Woolworths’ main operations include supermarkets (under the Woolworths brand in Australia and Countdown in New Zealand), retailing through its discount department stores under the Big W brand, and business-to-business (B2B) brands like PFD. Overwhelmingly, it’s 35%+ share of Australian supermarkets is its crown jewel.

Share price valuation

As a growth company, the way to put a rough guesstimate on the REA share price could be to compare its price-to-sales multiple over time. Currently, Rea Group Ltd shares have a price-sales ratio of 15.83x, which compares to its 5-year average of 16.25x, meaning its shares are trading below their historical average. Please keep in mind that context is important – and this is just one valuation technique. I wouldn’t make a decision based on one metric.

Since it is a more mature-style business, the WOW share price is offering a historical dividend yield of around 3.08%, which compares to its 5-year average of 2.88%. The Rask websites, especially our Rask Education platform, offer free tutorials explaining Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). Both of these models would be a better way to value the WOW share price.

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