The REA Group Limited (ASX: REA) share price has been a strong performer over the last 12 months.
Since this time last year, the property listings company's shares are up a sizeable 67%.
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Can the REA Group share price keep climbing?
The good news for investors is that Goldman Sachs believes the REA Group share price can keep on climbing.
In response to its third quarter update last week, the broker has retained its buy rating and lifted its price target on the company's shares to $187.00.
Based on the current REA Group share price of $156.05, this price target implies potential upside of 20% over the next 12 months.
What did Goldman say?
Goldman was pleased with REA Group's performance during the third quarter and expects more of the same in the future. Particularly given its belief that it is winning market share from rival Domain Holdings Australia Ltd (ASX: DHG).
It commented: "For REA, we see a strong near-term earnings outlook, given: (1) April listings +98% yoy (+33% vs. Apr-19), with listings strength continuing into May/Jun (and FY22E) in our view; (2) Strong yield growth, with +8%/+6% price rises in FY22/23E (in line with GSe); (3) Ongoing depth penetration (Premiere All traction, new products gaining strong traction); (4) Share gains vs. DHG – We estimate REA Australia revenue grew +13-14% (Resi > +15%, given +8% listings, > +7% yield) vs. DHG Digital +8% (Resi +11%, with +4% listings, +7% yield); and (5) strong cost discipline, with FY21E costs now marginally higher (was flat) given stronger revenues."
This led to Goldman upgrading its earnings forecasts for FY 2021 through to FY 2023 and its price target accordingly.
Don't forget Move
The broker also advised investors not to overlook the value of REA Group's investment in US-based Move.
It commented: "Despite the strong YTD performance, we still do not believe the market is fully appreciating the value of Move. For example, although: (1) our FY21 revenue for Move of US$615mn is equivalent to 85% of REA FY21E; (2) it is growing materially faster (i.e. +30% in FY21E vs. REA +10% cc); (3) it is meaningfully lower margin, Move should see margin expansion (we expect Move EBITDA margin to increase from 3% in FY20 to c.15% in FY21E vs. REA 58% to 62%). However, despite these strong financial metrics, our above consensus US$6.9bn Move valuation is only 40% of our REA valuation."
