Can the share price of REA Group Limited (ASX: REA) go any higher after surging to a record high above $68 on Monday morning?
This puts the share price gain of the online property classifieds company at around 23% this calendar year, or 1,088% for long-term shareholders who have stuck with the company for the last 10 years.
It is clearly one of the great success stories on the ASX, although some are starting to get wary due to the growing headwinds in the domestic residential property market.
However, there are reasons to think the stock is well placed for another burst of short-term outperformance as the stock looks to be "double blessed".
No, I am not referring to divine intervention here. Double blessed refers to a stock with favourable technical and fundamental factors that support further gains. It may not be too late to jump on the stock for investors who thought they missed the bus.
Those who practice alchemy, I mean technical analysis, will be excited by the fact that the stock has comfortably broken above its previous peak of $65.27 on 29 June 2017. That high was seen as a cap to the stock's advance, but the break above the previous resistance means REA is likely to run towards $70 in the short term.
Those who are more grounded in fundamentals also have reason to cheer. Morgan Stanley is tipping the stock to outperform over the next 60 days, as it believes management is poised to beat consensus earnings forecasts.
The broker noted in the months of June and July there was a lift in the number of new listings for residential properties in Sydney and Melbourne. It also noted that figures from the previous comparable period of July to September were weak, and that will make this year's figures over the same period look good.
For every 5% change in volumes, Morgan Stanley estimates a $25 million impact on REA's earnings before interest, tax, depreciation and amortisation (EBITDA). This means REA shareholders might be in for a pleasant surprise when the company provides an update at next month's reporting season.
The broker is pretty confident of a good outcome and thinks there is an 80% probability that the stock will rise over the next two months or so.
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