Carsales.com's price rise
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Like most of the online classified companies, Carsales.com's share price has been strong in a weak market. Investors seem to regard these stocks as somewhat defensive in the face of market declines and concerns about China.
This makes them look comparatively expensive, however. Particularly so now that Carsales.com is being rated on multiples similar to REA Group and Seek, both of which are businesses with better earnings growth potential over the long term.
For that reason, we're downgrading the recommendation. Carsales has remained consistently above our $11 buy limit for some weeks now. We're expecting Carsales.com to report fairly anaemic earnings growth in the February interim results reporting season.
The stock is up 19% since Carsales.com: AGM 2015 from 26 Oct 15 (Buy – $9.77). We're downgrading to HOLD, with a suspicion that another buying opportunity might present itself later this year.
Note: The Intelligent Investor Growth and Equity Income portfolios own shares in Carsales. You can find out about investing directly in Intelligent Investor and InvestSMART portfolios by clicking here.
Disclosure: The author owns shares in Seek.
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