FTSE 100 stock Rightmove (LSE: RMV) has taken a big hit recently. Currently, the stock can be snapped up for around 550p – about 30% below the level it was trading at two years ago.
At this level, I think investors should consider Rightmove shares for their portfolios (I’ve been buying them for my own portfolio recently). Here are three reasons why.
Momentum in the business
First, this is a business that’s performing well right now.
Last week, the property search company posted a trading update that was very encouraging.
Not only did it advise that recent revenue growth has been above consensus expectations due to higher-than-expected advertising spend, but it also upgraded its average revenue per advertiser (ARPA) guidance for the full year.
It added that for 2023, it expects revenue growth of 8-10%. This level of growth is pretty impressive when we consider that most UK housebuilders are set to see revenue declines of 30% or more this year.
A low valuation for an internet company
Second, the valuation here is very reasonable, to my mind.
At present, Rightmove trades on a forward-looking price-to-earnings (P/E) ratio of around 21.
I think that’s great value.
This is an internet company with a huge market share, an excellent growth track record, a high return on capital (meaning it’s very profitable), an excellent dividend growth track record, a strong balance sheet, and share buybacks.
Given its high-quality attributes, I think it could easily command a P/E ratio of 25 or higher. In other words, I see it as undervalued.
Nick Train has been investing
A third reason I think the stock is worth a look right now is that UK portfolio manager Nick Train has been buying it for his UK equity fund, Lindsell Train UK Equity.
Train – who’s generally regarded as one of the UK’s best long-term investors – doesn’t buy new stocks for his fund very often. Sometimes, he goes years without buying new holdings.
So, his investment here is notable.
It indicates that he sees Rightmove as a high-quality business and that he likes the valuation at current levels.
One key risk
Now, like every stock, Rightmove has its risks.
One that a lot of investors have been worrying about recently is the fact that US property business CoStar just bought the UK’s OnTheMarket.
Investors are concerned that going forward, Rightmove could see a greater level of competition from OnTheMarket.
We can’t ignore this risk. It does add some uncertainty to the investment case.
However, I reckon Rightmove has what it takes to fend off the competition and continue dominating the UK property market search space. This is a company with a strong brand and a loyal following.
So, I’m backing it to succeed and continue delivering strong returns for investors.
