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2 ASX shares I can’t ignore: REA and WTC

The Rea Group Ltd (ASX:REA) share price is up 24.2% since the start of 2024. It's probably worth asking, 'is the REA share price good value?'
The Rea Group Ltd (ASX:REA) share price is up 24.2% since the start of 2024. Meanwhile, the WiseTech Global Ltd (ASX:WTC) share price is 14.8% away from its 52-week high.

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% per year, a good clip.

WTC shares

Founded in 1994 by Richard White and Maree Isaacs, Wisetech Global is a developer of cloud-based software used for international and domestic logistics industries.

Wisetech has a suite of software products used across various logistics functions including fowarding & customs, landside transport, rates & contracts, warehousing, and transport management systems.

Their cornerstone software, Cargowise, is an industry-leading solution now used by all 25 of the largest global freight forwarders and 46 of the top 50 third-party logistics providers.

REA share price valuation

As a growth company, some of the trends we would be looking for from REA include revenue growth, profit growth, and return on equity (ROE). Since 2021, REA has grown revenue at a rate of 18.6% per year to reach $1,677m in FY24. Over the same time period, net profit has fallen from $323m to $303m. REA last reported a ROE of 18.9%.

Over the last 3 years, WTC has increased revenue at a rate of 27.1% per year to hit $1,042m in FY24. Meanwhile, net profit has risen from $108m to $263m. WTC’s last reported ROE was 12.8%.

Please keep in mind that context is important – these metrics give us some indication of company performance, but we need a lot more info to work out the value of REA or WTC shares. To learn more about valuation, I’d recommend signing up for one of our free online investing courses.

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