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REA and BHP Group Ltd: 2 ASX shares to dig into

The Rea Group Ltd (ASX:REA) share price is up 69.9% since the start of the 2024. The BHP Group Ltd (ASX:BHP) share price is tracking 11% off its 52-week lows.

REA share price

Founded in 1995, REA Group is a Melbourne-based real estate advertising company that is majority owned by News Corp. In Australia, it operates through its Realestate.com.au platform.

REA Group operates on a global scale and now operates property websites in around 10 countries used by some 20,000 agents. In a typical month, the core Australian website gets over 55 million visits. The business is broken down across geographic lines, with Australia taking the lion’s share of revenue. Within Australia, REA makes money by listing properties for sale or rent (i.e. the agent uses REA’s website to show properties, which the property owner is on the hook to pay). It also makes money from financial services (e.g. mortgage broking), but this is a much smaller part of the business.

Property websites such as Realestate.com.au attract both buyers and sellers and aim to simplify the process resulting in an efficient and stress-free transaction. We believe its competitive advantge is that of any other established platform: network effects and efficient scale. In other words, Domain (the #2 player) is meaningfully behind REA in users and views, which means REA can continue to charge more.

BHP share price

BHP Group (formerly BHP Billiton) is a diversified natural resources company producing commodities that was founded in 1885.

BHP’s principal business lines are mineral exploration and production. BHP’s assets, operations and interests are separated into three focus areas: Copper and related minerals (e.g. gold, uranium, silver, zinc, etc.), Iron Ore, and Coal (i.e. metallurgical and energy).

Share price valuation

As a growth company, the way to put a rough guesstimate on the REA share price could be to compare its price-to-sales multiple over time. Currently, Rea Group Ltd shares have a price-sales ratio of 17.51x, which compares to its 5-year average of 12.29x, meaning its shares are trading higher than their historical average. Please keep in mind that context is important – and this is just one valuation technique. I wouldn’t make a decision based on one metric.

Since it is a more mature-style business, the BHP share price is offering a historical dividend yield of around 5.78%, which compares to its 5-year average of 9.38%. The Rask websites, especially our Rask Education platform, offer free tutorials explaining Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). Both of these models would be a better way to value the BHP share price.

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