Rightmove (LSE:RMV) might be the best stock in the FTSE 100. The company is in great shape and looks set to return cash to investors for a long time to come.
The Rightmove share price fell by 30% in 2022. But the underlying business seems to be going from strength to strength.
As a result, I think that the company’s shares are better value than they were at the start of 2022. Today’s prices look like a buying opportunity to me.
Earnings
Mr. Market wasn’t impressed by Rightmove’s earnings last week. The stock fell slightly on Friday as the FTSE 100 moved higher.
Despite rising inflation and a slowing UK housing market, the company reported £333m (compared to £305m in 2021). Earnings per share were 23.4p (up from 21.3p).
The amount of time users spent on its platform remained above pre-pandemic levels. And the company returned £198m to shareholders through dividends and share buybacks.
Rightmove is currently in the process of changing its CEO, with Johan Svanström replacing Peter Brooks-Johnson. This is probably the biggest risk with the stock right now.
Changes in leadership can be disruptive for businesses and this is something that investors will want to keep an eye on. But the new CEO is inheriting a business in a strong position.
Rightmove has no debt, low operating costs, and a competitive position that is difficult to disrupt. All of this makes it a solid copmany to be taking over.
Valuation
Earnings growth of 10% might not seem like much for a stock trading at a price-to-earnings (P/E) ratio of 25. But the company has at least three ways to boost its earnings per share.
The first is by increasing prices to advertisers. Rightmove’s user base makes it a platform that homebuilders and estate agents need to be on, giving it pricing power.
In its report, the company announced that average revenue per advertiser was up 11% from the previous year. Despite this, the number of advertisers remained largely unchanged.
The second is by moving into different markets. Rightmove has been developing and growing platforms for commercial property and overseas listings.
Both of these did well in 2022. The commercial property platform grew by 19% and the overseas listings platform managed 21% growth.
The third is by repurchasing shares. Buybacks lower the total share count, meaning that each remaining share has a greater claim on the company’s overall earnings.
In 2022, Rightmove’s buybacks reduced its number of shares outstanding from 859m to 835m. And management reiterated its commitment to further buybacks in future.
A stock to buy
Rightmove’s P/E ratio might make the stock look expensive. But I think it has some of the best growth prospects of any FTSE 100 stock.
Combined with the intrinsic strengths of the business, this makes the stock attractive. That’s why I think it’s a buy at today’s prices.
