Property portal Rightmove (LSE: RMV) shares have taken a hit from the property slump. I still say housebuilders are some of the best stocks to buy for long-term investors. But what about Rightmove now?
Well, the shares gained 5% on 27 November in response to the latest update.
We’ve seen a 26% fall in two years, mind. And the past five years have brought a 32% rise. There’s a lot of volatility here.
Trading update
Rightmove had previously predicted average revenue per advertiser (ARPA) of between £103 and £105. And that’s been lifted, with full-year ARPA now put at £112 to £116.
It seems most of the rise has come from new homes developers. Who says the housebuilding business is struggling? Dented a bit, maybe, but I see long-term health.
For the rest of the board’s guidance, it now sees revenue growth of 8% to 10%, with underlying operating profit up between 7% and 8%.
Rightmove expects an underlying margin of 73%. And that sounds like a cash cow margin to me.
Picks and shovels
The estate agent business does look like a risky one. But I think Rightmove has a good model.
I see it as a ‘picks and shovels’ business, named after those who cleaned up selling the tools and supplies to all the prospectors in the gold rush.
The firm says it’s the UK’s largest property portal, and that it advertises “90% of all homes for sale via estate agents across the UK, representing circa 95% of the market.“
Whoever is actually making the sale, Rightmove makes a bit of cash from almost every UK transaction.
Valuation
Stocks like this, which have risen to command a specific market, rarely come cheap. And this is no exception.
Right now, broker forecasts put the stock on a price-to-earnings (P/E) ratio for the full year of 21. They see it dropping to 18 by 2025. But is that a bit steep in the current property climate?
There are dividends too, but we’re looking at a yield of only around 1.7% for 2023. Analysts think it should rise to 2% by 2025. It’s not what I’d call a top income stock, for sure.
Defensive moat?
I’d say Rightmove has the UK property portal business largely sewn up. At least, at the moment. But that could change.
US firm CoStar launched a bid for much smaller rival OnTheMarket in October. That gave the latter’s share price a boost on the day, but did the opposite for Rightmove.
Still, it has recovered a bit, so maybe the threat isn’t as big as it might seem.
But when a company’s business is online, all it might need to knock it off the top spot is money. CoStar has plenty of that.
Too much risk?
I do think Rightmove could be a good stock to consider buying now for long-term investors, in a market with great prospects.
I just don’t see the need to take risk at the moment, though. So it’s not for me.
