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Hot stock pick REA Group

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This week Money asks Roger Montgomery for his hot stock pick - REA Group (ASX:REA)

Over the past 3 years REA Group, operator of the dominant realestate.com.au home listing site in Australia, has been a market favourite with its stock price up 3-fold. During this period the stock's PE multiple peaked at almost 40 times. But in early May the shares fell from $48 down to $43 overnight following a quarterly report that surprised the market with a departure from fantastic revenue growth rates of years past. The share price continued to slide below $38 in June.

When it comes to selling a house REA Group provides a massive audience of buyers and the best chance of achieving a high price. Yet the company only takes a very tiny fee in comparison, leaving the business with substantial pricing power and strong organic growth prospects for many years to come. At around $43 the current share price remains 10% below its trading level prior to the results announcement and the PE multiple has compressed to 25. Near term uncertainty has made the stock cheap for long term investors.

REA group

REA Group
REA Group

Roger Montgomery is founder, chairman and chief investment officer of Montgomery Investment Management. Following a successful career as an analyst and public company chairman, Roger published the first edition of his stock market guide, Value.able, in 2010, becoming an Australian best seller in just 16 weeks. He holds a Bachelor of Commerce and is a senior fellow of the Financial Institute of Australasia.
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