REA Group Ltd (ASX: REA) shares are surging on Thursday, climbing 9% to around $176.62 following the company's first-quarter update.

That's a substantial move for an already highly regarded stock on the S&P/ASX 200 Index (ASX: XJO). 

But having looked through the results, I think there's a good case for buying even at this higher price.

A strong result in a difficult market

What impressed me most about REA's update was its ability to grow despite a softer property market. National residential listings declined 2% during the quarter, with Melbourne and Sydney experiencing much sharper falls.

Fewer properties being advertised could have made life difficult for a business that earns money from property listings. Yet REA increased revenue from its core continuing operations by 11% to $450 million, while operating EBITDA rose 12% to $294 million.

I think that says a lot about the strength of realestate.com.au.

The website attracted an average of 11.5 million people each month during the quarter, including 5.6 million who didn't visit its nearest major competitor.

For agents trying to reach prospective buyers, I believe that audience is hard to ignore. It also gives REA the ability to sell premium advertising products.

Its controllable residential Buy yield increased 14%, helped by higher prices for Premiere+ listings and greater use of additional products. In other words, the ASX 200 stock is finding ways to earn more from the listings on its platform, even when there are fewer of them.

And I think its opportunity extends beyond the moment someone decides to sell. REA reported that owners were tracking 5.3 million properties on its website, up 13% from a year earlier.

That's an enormous number of properties whose owners are choosing to stay engaged with the platform, even when they may not be actively buying or selling.

Over time, I believe those relationships could create more opportunities to connect homeowners with property services and strengthen REA's position.

Its results also demonstrated encouraging cost discipline, with Australian operating expenses increasing just 3% while revenue grew 9%.

I believe this ability to grow earnings while managing costs could become increasingly valuable as the business expands.

Are there reasons to be cautious about this ASX 200 stock?

Absolutely. Buyer enquiries fell 33% during the quarter, while seller leads were also lower. And management expects national listings to decline by a low-single-digit percentage across FY27.

Higher borrowing costs could keep activity subdued for longer than investors hope.

There's also the valuation to consider, especially following Thursday's rally.

According to CommSec consensus forecasts, REA is expected to generate earnings per share of $5.84 in FY27, $6.54 in FY28, and $7.28 in FY29.

At $176.62, that puts the shares on a PE ratio of approximately 30.2 times FY27 earnings, falling to 27 times in FY28 and 24.3 times in FY29.

Those aren't bargain multiples. However, the forecasts imply annual earnings growth of almost 12% over the two years to FY29, and I think REA's competitive position can support a premium valuation.

Foolish takeaway

The 9% jump means investors are paying more for the ASX 200 stock today, and there could be volatility if property conditions remain weak.

Still, I like businesses that can keep growing through difficult periods. REA has just given shareholders another demonstration of that ability.

For me, its audience, pricing power, and opportunities to deepen customer relationships make it a strong long-term buy around current levels.

The post Why I think this world-class ASX 200 stock is a strong buy after its Q1 update appeared first on The Motley Fool Australia.

Motley Fool contributor Grace Alvino has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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