Despite their reputation as slow movers, FTSE 100 stocks can sometimes gallop.
And that’s what’s happening with Rightmove (LSE: RMV) today (27 November), on the release of a positive trading update.
The company describes itself as the UK’s largest property portal. And my guess is many people have probably heard of it even if they haven’t used the website.
However, a threat has emerged that could upset Rightmove’s strong position.
A big player is moving in
In October, Rightmove’s smaller and newer rival OnTheMarket received a takeover offer. And the suitor is a deep-pocketed American company called CoStar.
The problem here is that CoStar’s more than £27bn market capitalisation makes Rightmove’s almost £5bn look tiny. And CoStar is keen to enter the UK property market to extend its previous success.
CoStar reckons it has previously invested billions into building the world’s leading online property marketplaces, “generating hundreds of millions of leads, resulting in millions of successful commercial and residential property transactions for its clients”.
It looks like OnTheMarket, with its modest market-cap around £87m may be about to be transformed into a well-financed powerhouse. And it could seriously challenging Rightmove’s dominance in the UK in the coming years.
Shareholders’ wild ride
Back in October when the takeover news broke, the Rightmove share price plunged. However, it’s been recovering well since.
Today’s update has fuelled the stock’s resurgence, And as I write, the price is up around 6% since the stock market opened.
The directors said that robust trading is continuing and they have a “clear” investment plan to “accelerate”revenue and profit growth.
Chief executive Johan Svanstrom said business momentum has continued through the third quarter and beyond.
So for the time being, the popularity of the platform is still driving sales. And Svanstrom thinks there are “significant” growth opportunities ahead.
Steady performance and a rich valuation
However, City analysts have pencilled in modest-looking projections. Earnings and shareholder dividends look set to rise by mid-single-digit percentages on for the full 2023 trading year and in 2024.
Rightmove has been a steady performer but it doesn’t look like a high-growth proposition. And that’s even before any threat from CoStar develops.
If it’s not fast growth, it must be income, right?
Sadly, no. With the share price near 541p, the anticipated dividend yield is a mere 1.75% for 2024. And the main reason for that is the lofty projected earnings multiple for that year near 21.
The Rightmove business has a long record of reliable progress, and that could continue into the future.
However, the risks stack up too much here for my liking. Rightmove’s long-term position in the market may be under threat. And the stock has extra vulnerability because of it high-looking valuation.
So I’m choosing to ignore the shares for the time being and will consider other stock opportunities instead.
