What Happened to REA Group Ltd’s Share Price?
Shares in property advertiser realestate.com.au REA Group Ltd [ASX:REA] took an 8.7% pounding today. That selloff was much sharper than the risk-off mood of the broader stock market. REA Group shares have now sold off by more than 18% since hitting an all-time high in early March.
Why Did This Happen to REA Shares?
This morning REA Group reported a result for the year ending 30 June 2014 that most Aussie-listed companies would kill for.
Net profit grew by 37% to almost $150 million. That’s a great headline result, but less so when you consider that many market analysts had expected an even better result.
The culprit seems to have been softer sales. Annual revenue ‘only’ grew 30%, to $437.5 million.
When the stock market puts an extremely high valuation multiple on a stock, it generally wants to see the company generate strong profits through robust sales. Any chinks in the armour can cause the share price to fall far and fast.
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What’s more, the company’s mention of ‘challenging conditions’ in certain markets seems to have caused a minor panic among investors. It seems that life without former chief Greg Ellis won’t be easy.
For a share price to keep rising, the company has to keep on positively surprising investors. That’s why REA shares gapped down today.
What Now for REA Group Ltd?
REA Group has been a sensational growth story for several years. But it has well and truly become a blue-chip large cap company. It’s at a point where continued outperformance becomes more and more difficult.
As long as realestate.com.au remains the market leader, agents will want to advertise their real estate on the site. But today’s result will lead many investors to question whether a sky-high valuation is appropriate for this stock.
Cheers, Tim Dohrmann+
Small-Cap Analyst, Australian Small-Cap Investigator
Join Money Morning on Google+
The post Why the REA Group Ltd Share Price Tanked Today appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
