3 Feb 2014

TradeMe still growing

7:49 pm on 3 February 2014

TradeMe is still a growth stock even though future growth will probably be slower than previously, Morningstar analyst Nachi Moghe says.

Trade Me screen shot

Photo: RNZ

Mr Moghe said he believed the market had over-reacted to TradeMe's slowing growth profile; shares in the company peaked at $5.45 last May but fell as low as $3.95 in January. They ended trading on Friday at $4.

Mr Moghe said he believed $4.40 was fair value for TradeMe shares.

He said the slowdown mostly responsible was in the auction business, which accounted for about 40 percent of the revenue.

"That business has slowed down as it has reached a level of maturity but the auction has got two components - one is the new goods business and one is the old goods business.

"The old goods business is a significant chunk of that, and that has reached a maturity and will grow in line with nominal GDP growth," Mr Moghe said.

The company was trying to boost the new goods business but goods being sold through the website were not high-value, so they were trying to get more branded, new goods on to it.

However, it faced competition from international websites such as Amazon and Ebay, which sold similar types of products, he said.

"That is the reason why we are a little skeptical and apprehensive at the moment."

Despite that, Mr Moghe believed there was potential for growth and said a point of difference was that consumers were more comfortable dealing with a New Zealand company as it could offer such things as warranties.