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’s best known for 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. While the business has diversified globally, Australian operations still account for 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.
The competitive advantge that REA has is the same as any other established platform: network effects and economies of scale. In other words, Domain (the #2 player) is meaningfully behind REA in users and views, which means REA can continue to control pricing and market dynamics. REA also benefits from owning assets across all parts of real estate, including listing, advertising, mortgage broking, and house sharing.
While it may be large, Rea Group Ltd is a growth stock, and so it requires a different set of rules and may not be simple to value at times. Studies have shown that over 5-10+ years, it’s top-line revenue growth which explains a stock’s performance. That’s why it’s good to see Rea Group Ltd is able to grow revenue at 18.6%, a good clip.
BHP shares
BHP Group (formerly BHP Billiton) is a diversified natural resources company founded in 1885 that produces commodities for energy use and manufacturing, and is moving into fertilisers.
BHP’s principal business lines are mineral exploration and production. BHP’s assets, operations and interests are separated into three focus areas: copper and related minerals (e.g. gold, uranium, silver, zinc, etc.); iron ore; and coal (i.e. metallurgical and energy).
BHP shares are often seen as a reliable dividend-paying investment and are a common constituent of an ASX share portfolio. If you own a popular ETF or LIC, or invest with Industry Super, chances are you have some exposure to BHP shares already.
REA share price valuation
As a growth company, one way to put a rough forecast 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 15.91x, compared 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. Investment decisions can’t just be based on one metric.
Since it is a more of a ‘blue chip’ company, we could look at the dividend yield of BHP to determine its value. BHP is offering a historical dividend yield of around 5.51%, which compares to its 5-year average of 5.36%. The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets. Both of these models would be a better way to value the BHP share price.
