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Is the Domain Holdings (ASX:DHG) share price seriously cheap?

The Domain Holdings Australia Ltd (ASX: DHG) share price recently hit a new 52-week high. However, Domain has not released a price-sensitive announcement to the market since delivering its FY20 results.

DHG share price chart

Source: Rask Media DHG 6-month share price chart

Domain operates Australia’s second-largest real estate advertising platform. It listed on the ASX in November 2017 when it was de-merged from Fairfax Media.

Why are Domain shares hitting a 52-week high?

The Domain share price is currently trading at $4.38, which is its highest closing price in the last 52 weeks. This is likely due to the Reserve Bank of Australia’s (RBA) decision to cut interest rates to a record low of 0.1%.

Following the RBA decision last week, Domain published an article saying: “The most recent interest rate cut could put upward pressure on house prices despite the weak jobs market and collapse in immigration, bank economists warn.”

RBA Governor Philip Lowe released a statement on the rate cut: “I should point that our actions are also lowering the cost of finance for all other borrowers in Australia, whether they are a household buying a home or a business wanting to expand. This lower cost of finance for everybody is supporting the recovery from the pandemic.”

Overall, it is clear market participants believe the RBA decision will benefit Domain by stimulating activity in the real estate market.

How do DHG’s FY20 result stack up?

Domain was hit hard by COVID-19, with its platforms experiencing an 11% reduction in total market residential listings. As a result, FY20 revenue was down 9% to $261.6 million and EBITDA dropped 17% to $84.4 million.

Looking forward, Domain CEO Jason Pellegrino said, “FY21 H1 will be subject to the health and economic consequences of COVID-19, and in particular, the return of more typical seasonality patterns for the Spring selling season.”

For a full wrap of Domain’s FY20 results, read Cathryn’s detailed analysis.

We can gain additional insights into Domain’s performance by comparing its FY20 results to that of REA Group Limited (ASX: REA).

According to REA Group, its realestate.com.au website receives 3x more visits than its nearest competitor, Domain. REA experienced a 12% drop in national listings, almost the same as Domain’s 11% decline. Australian-derived revenue dropped 7% to $746.7 million, while Australian EBITDA fell 4% to $495.5 million.

Have a read of Jaz’s comprehensive REA FY20 writeup here.

Is it a good time to buy Domain shares?

While the RBA rate decision will likely benefit Domain, it will also benefit competitor REA. Domain provides exposure to only Australia’s property market, while REA also provides exposure to real estate advertising platforms serving North American and Asian markets.

In Australia, Domain’s platform has not proven it can make inroads into REA’s dominance. I would like to see evidence that Domain can increase listings at a significantly quicker rate than REA before becoming interested.

In the meantime, check out other ASX growth share ideas from the Rask Media team.

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Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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