Lincoln Valuation Stock Doctor analyst Jacob Simonsen has today confirmed REA Group stock retains its 'Star Group' Status, defined as stock with strong financial health, for growth investors looking for capital appreciation and prepared to pay a premium.
Star Group companies must fulfill criteria based on positive revenue growth over a year, more than 8 per cent return on assets (ROA) showing an upward trend, and more than 8 per cent growth in earnings per share over the last 12 months, positive over 18 months.
REA Group last week released its third quarter financial results reporting a revenue growth of 20 per cent for both the last three months and nine months ending March 2016.
EBITDA was up 25 per cent for the year to date to March 2016.
Operating expense growth outpaced revenue growth in the quarter with a planned timing difference in marketing and strategic initiatives. While Easter listings were impacted, April (4Q16) saw higher listing volumes as a result.
"The result is in line with previous expectations and featured strong growth of Australian residential depth revenue compared to the previous period," Simonsen says in his note for Stock Doctor.
"As such our forecasts will remain unchanged and the company is seemingly well placed to retain its Star Growth Stock Status."
Simonsen says Lincoln Valuation remains comfortable with its outlook for REA from a growth perspective and believes the company remains well placed going into the last quarter of FY16.
"The Australian division continues to be strong core with period on period revenue growth while the addition of Flatmates.com.au and settlement of the iProperty Group acquisition adds further streams of revenue and opportunity.
He says the company's valuation of the stock remains unchanged at $47.89.
At $53.37 (up 1.56 per cent by $0.82) REA is currently trading at a premium to its valuation on the back of a very strong run up in price.
"A current holding in the stock should be part of a well diversified portfolio should you be a growth focused investor," Simonsen confirms.
"Existing investors should potentially rebalance their exposure when they next make a portfolio decision. The company should benefit from the uptick in premium listed product sales that has been reported in the past 12 months."
"The company has a strong track record and we continue to believe that with strong organic growth the company will be able to meet our Star Growth Stock criteria into the future," he adds.
For June 2016, Lincoln Valuation forecasts REA Group will achieve 36.43 per cent ROA, 47.91 per cent revenue growth and a 25.80 per cent growth in earnings per share.