REA builds on earnings

REA has been one of the best performing stocks on the ASX for a while and as a result investors have come to expect big things from the company.

Online companies have gone from strength to strength as their fairly lean operational structures and strong revenue growth drives earnings. To put it in perspective, REA shares were trading under $20 just a year ago and are now firmly above $40.

The recent departure of its CEO and CFO did put a dampener on the stock temporarily, with the stock gapping lower mid-January, only to find buyers on the dips; showing just how confident investors are in the REA story.

There were also concerns that the stock might be priced for perfection and as a result a blockbuster result was needed to keep the run going. Its 1H earnings today were greeted by further buying on a day where investors are fleeing cyclical stocks.

Adjusted net income jumped to $67.7 million which was towards the upper end of the analyst range. There was also a sharp improvement in the dividend from 16 cents to 22 cents a share, while revenue was up 30% and slightly ahead of estimates.

The shift from subscriptions to depth products which meet specific market needs has been a key turning point. Property investors have become more astute and REA is looking to stay ahead of the curve by exceeding their needs. Traditionally REA does not give any outlook guidance and this notion was maintained.

This result has been enough to take the stock through recent resistance in the $42.50 region. Whether it can close above this resistance will be key for the stock going forward. There is a steady uptrend in place and this is likely to continue providing support.

Any dips below $40 or test of the uptrend I feel would present a great opportunity to buy the stock. Momentum traders will be eyeing a Darvas breakout, which would essentially be confirmed by a close above its 12-month high.


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