Rightmove shares (LSE: RMV) have risen just 10.75% in five years as some investors question whether the firm has reached the limits of its growth. After all, it now boasts a dominant 86% share of the online property website market.
However, according to its strong H1 results released on 28 July, the FTSE 100 company is still growing healthily. Nearly all figures and profitability metrics were up.
Yet the market wasn’t particularly impressed following the report, with the shares falling 2.5% to 538p mid-morning.
So, is this now a chance for me to add more of this stock to my portfolio? Here are my thoughts.
Still growing
In the six months to the end of June, Rightmove reported revenue of £179.5m, a 10% increase over the same period last year. That was the biggest first-half jump in the firm’s revenue in five years.
Meanwhile, operating profit was up 7% to £129.5m, and basic earnings per share (EPS) rose 3% to 12.1p. Management said this lower EPS growth reflected the impact of the corporation tax increase in 2023.
The company reported that customers increased their use of its digital products and continued to upgrade their packages. As a result, average revenue per advertiser was up 9% to £1,411 per month.
Unsurprisingly, consumers are increasingly using its Mortgage in Principle feature to assess mortgage affordability amid higher interest rates. It expects revenue from this area, which it earns in partnership with Nationwide, to increase moving forward.
Finally, the interim dividend was lifted by 9% to 3.6p a share. Though modest with a 1.6% yield, the company’s dividend has grown at an average of 7.9% over the last five years.
Not all milk and honey
Less positively, membership numbers only rose 1%, with just 102 estate agents and other businesses signing up.
Also, time spent on the platform by home hunters averaged 1.4bn minutes per month during the period, down from 1.5bn the year before.
This reflected the slowing UK property market, which remains a concern. However, website activity was still 27% above the 2019 pre-pandemic level.
My move now
A key attraction for me as an investor has always been Rightmove’s asset-light business model. As a platform, the firm doesn’t touch any actual property. This means the company is extremely profitable, with an incredible 73% operating margin.
Moreover, this metric is very stable, as disciplined cost management remains a key feature of the business.
Regarding the underwhelming five-year share price performance, I think Rightmove has become a victim of its own success in some ways.
With an 86% market share, it remains the go-to starting point for anyone looking to buy, sell or rent a home. But investors regularly question where further growth is going to come from.
More importantly, they ask whether it’s worth paying a 23.7 times earnings multiple for mature growth in the mid-to-high single-digits.
That said, management is “modestly” increasing investment in the business to drive organic growth. As a result, it’s guiding for double-digit revenue and profit growth in the medium term and beyond.
If that happens, then the stock should do well, which is why I’m going to keep holding. But I won’t be buying more shares, as I think there are better growth stocks out there for my money right now.
