Shares in iProperty Group (IPP) has rallied to a record high during lunch time trade on hopes that the Asian property website operator will follow REA Group’s (REA) stellar path to success.
iProperty jumped 7.4% to $3.65 as Baillieu Holst said that the stock has reached an important growth inflection point, putting it in a similar position as Australia’s largest real estate website operator back in 2004 (when REA really took off).
“IPP recorded group operating revenue of $A19 million in FY13,” wrote Baillieu’s analyst Nick Caley in a note released today.
“It should be noted that peer Australian property portal, REA Group achieved revenue of $A19 million in FY04, which became the platform for a decade of sustained high-growth in its Australian revenues.”
There are other similarities between the two companies. Caley points out that iProperty draws on REA’s playbook in building critical mass of agents using subscription-based products and adding other value added products to secure a dominant market position. iProperty is the market leading property website in Hong Kong, Malaysia and Indonesia.
However, analysts will find it increasingly hard to keep their “buy” recommendation on the stock as iProperty is trading at a steep premium to the market. At the current price, the stock is on a price-earnings multiple of over 57 times based on 2014-15 consensus earnings forecast and 44 times on 2015-16.
Indeed, today’s share price jump puts the stock within striking distance to Baillieu’s upgraded price target of $3.70.
But high valuations in itself does not necessarily warrant a sharp sell-off in the stock. Management has done an admirable job in generating shareholder wealth and Asia’s online advertising market still has plenty of room to grow as it is nowhere near where Australia is.
What it does mean though is there is little room for mistakes. Management will have to continue to execute the growth strategy perfectly to keep investors onside.
You can read more about iProperty here. The stock has surged nearly four-fold in the past year.