Are Rightmove shares cheap after an impressive 2022?

Dr James Fox takes a closer look at Rightmove shares after the company posted a rise in full-year operating profit and increased the dividend on Friday.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young Black man sat in front of laptop while wearing headphones

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Rightmove (LSE:RMV) shares fell on Friday despite some fairly positive earnings data. The stock dropped 2.5% in morning trading, meaning the firm is now down 18% over 12 months.

The housing market in the UK may not be particularly strong, but Rightmove isn’t directly impacted by fluctuations in house prices. Instead, the company earns money from monthly subscription fees paid by customers to advertise all of their properties on the site and other advertising income.

So, is this a stock investors should be pilling into? It’s certainly something I’m considering.

Resilient traffic

Rightmove runs the UK’s largest online real estate property portal. But amid one of the most challenging periods for the housing market in over a decade, Rightmove posted a rise in full-year operating profit.

The company said it has seen “resilient traffic despite a significantly less frenetic property market than 2021″.

Operating profit rose 7% to £241.3m, with revenues 9% higher at £332.6m. Earnings per share rose 9% to 23.8p — suggesting a price-to-earnings of 22.9 — and the total dividend for the year was lifted by 9% to 8.5p a share. The yield still sits below 2%.

People spent a collective total of 16.3bn minutes on the platform during the year. That was down from 18.3bn in 2021 when the housing market was in overdrive, but 34% higher than the pre-pandemic record of 2019.

Clients growth strong

There was positive news on the revenue generation side too. The platform owner said that customers continued to upgrade their packages and to increase their use of digital products.

This was reflected in revenue per advertiser, which increased 11% to £1,314 per month. This represented the second-highest year ever for absolute ARPA (average revenue per advertiser) growth.

While we remain alert to the ongoing economic uncertainty, Rightmove is not materially impacted by the property market cycle, other than in the most extreme circumstances”, the company said in a statement.

What about the future?

In the near term, there are several positives to look at. Firstly, the firm says it’s not materially impacted by cycles in the property market, however it is the case that interest in the sector determines site visits. While housing sales are slowing, the rental market is booming in many parts of the country. And, of course, Rightmove also offers rental advertising.

The firm also said that strong ARPA growth in the second half of 2022 gives increased confidence for further ARPA growth in 2023. Rightmove expects customer numbers to follow a similar pattern to that of the second half of 2022.

In general, the fundamentals are very positive. The forecast is for an underlying operating margin around 73% this year — that’s huge. It has a strong balance sheet, impressive cash generation metrics, and a buyback programme that should boost the share price in the coming years.

So, would I buy Rightmove stock? The metrics are very impressive, but I’m not sure how the firm delivers on that expensive price-to-earnings ratio. Moreover, I’m not sure where that growth is coming from, because the company already dominates the space in which it operates.

I’m going to keep an eye on this one, but I’m not buying now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Investing £5,000 in a Nasdaq 100 index fund 5 years ago would be worth this much now

Zaven Boyrazian looks at the Nasdaq 100 index’s performance since December 2019. Has investing in an index fund been good?

Read more »

Electric cars charging at a charging station
Investing Articles

Why the Tesla share price rocketed 38% in November

Our writer considers the reasons for the recent red-hot Tesla share price performance. Is now a good time for him…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
US Stock

Why NIO stock fell 13% in November

Jon Smith flags up a couple of key factors that he believes contributed to the fall in NIO stock over…

Read more »

Investing Articles

Which of these UK stocks is the better bargain in December?

Stephen Wright thinks Diageo and Senior are very different UK stocks with very similar prospects. But which one offers better…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

Mistakes to avoid when investing in the FTSE 100!

The FTSE 100 offers great near-term valuations and dividend yields, but Dr James Fox believes investors should be wary when…

Read more »

Investing Articles

Here’s why the Scottish Mortgage share price jumped 9.2% in November

The Scottish Mortgage share price has been outperforming indexes over recent weeks. Ben McPoland digs into some reasons why.

Read more »

Investing For Beginners

Why the IAG share price rocketed 24% in November

Jon Smith explains why the IAG share price did so well last month, citing three factors at work that helped…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

I think Tesla stock’s overpriced. So why not short it?

Our author thinks Tesla stock has got ahead of itself since the US election. So why not put his money…

Read more »