October was a rough month for Rightmove (LSE:RMV). The growth stock dropped by 16% over the past month, erasing all the gains from the past year. It’s now down almost 5% over the last 12 months. To make things worse, it also hit fresh 12-month lows last week at 465p. Despite all of this, there are plenty of reasons for investors to consider buying now.
Reasons for the tumble
The online property marketplace is naturally impacted by the broader property market. If nobody is buying/selling or renting a place, there’s little in the way of revenue that Rightmove can make from listing fees. Further, income from advertisers and other subscription services will be lower during a slump in demand if fewer people visit the website.
Given the wobble that the property market has endured over the past year, it doesn’t surprise me to see absolute underperformance from the stock versus the broader FTSE 100 index.
In the short term, the share price took a dive following news that one of its main competitors has been bought. The competitor is OnTheMarket. Initially, it might seem odd for Rightmove shares to fall on this news. Yet it makes sense when we consider that the purchaser is looking to inject capital into OnTheMarket to help it to grow. This could take away market share from Rightmove and hurt profits.
Why I think it’s a smart buy
The risks mentioned are valid going forward. But I’m not sure they’re factors that are guaranteed to hurt the firm in the long run.
The property market goes in cycles with the economy. I’m confident that within the next couple of years the economy will grow at a faster pace as interest rates start to move lower. This should be a catalyst for property demand, helping to fuel better investor sentiment for Rightmove.
As for OnTheMarket, just because it will have greater funding it doesn’t mean it’s sure to become a top player in this sector. Even if it does grow market share, it’s a big enough pie for Rightmove to still be a very profitable business.
Finally, Rightmove is doing well financially. The half-year results showed a 10% jump in revenue versus H1 2022. Underlying earnings per share increased by 6%. So if we remove all the outside noise, the business is functioning well.
The bottom line
Growth stocks are usually more sensitive to changes in investor sentiment than other types of shares. I think we’ve seen Rightmove shares fall excessively to 52-week lows, based more on news instead of hard facts.
The facts are that the company is growing and has a high market share. This means it’s well positioned for whenever activity in the sector starts to take off again. On that basis, I think investors should consider buying the stock now.
