Is this FTSE 250 company about to make a move?

With interest rates now potentially peaking, many are looking to get back into the housing market. So can this FTSE 250 company benefit?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Modern suburban family houses with car on driveway

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The property market has seen major difficulties in the last few years. Soaring interest rates have put off many from selling homes, and from entering the market. With rates now potentially at the peak of the current cycle, could there be a wave of pent-up demand coming? If so, I like the look of this FTSE 250 company.

Rightmove

Rightmove (LSE: RMV), one of the major players in the UK’s property market, could be well positioned if activity picks up in 2024. The share price has been fairly volatile as the economic impact of the pandemic led to waves of uncertainty, inflation, and the highest interest rates in decades.

As inflation now comes down to near target levels, the Bank of England has hinted at interest rate cuts in 2024. This has led to a reduction in mortgage rates across the board. Many will be seeing this as the first opportunity to lock in a reasonable mortgage rate for a new home in years, and many first-time buyers will be keen to enter the market as homes become available.

The company makes money from estate agents listing these properties online. Becoming the destination for many looking to a buy or rent a home has led to a healthy net profit margin of 56% in the latest quarter.

Excellent operations

With the last few years spooking many in the property sector, annual growth has been slower than usual. Rightmove has generally matched the sector average of 4.1%, with revenues also growing at 4.6% in the last year.

Difficult times in a sector often lead to the gap widening between the best companies, and the rest. Debt levels are often a major issue during these periods. Fortunately, the firm do not have this headache, being completely debt free for the last five years. This gives the company room to breathe where competition may be struggling to manage debt repayments. This also enables the investments and innovation needed to pull ahead.

Management execution

Operating efficiencies and excellent management really matter during this time, and the return on equity — reflecting the level of efficiency in the business — is extremely impressive at 268%, dwarfing the competition with an average of only 8.1%.

CEO Johan Svanstrom is clearly looking to take advantage of the recent declines in the share price, with a share buyback program announced in 2023 to buy 10.05% of all available shares. With the dividend yield of 1.5% also expected to rise over the coming years, the business appears keen to reward shareholders.

Risks

Of course, the property sector is always exposed to risks. With many expecting an economic downturn, cuts in interest rates may not be enough to convince people to enter the housing market. With a UK election widely expected later in 2024, there is likely to be some volatility in the sector as many homebuilders and investors wait for an outcome before making major decisions.

What’s next?

Overall, I expect there could be a real opportunity here. There may be some volatility in the next year for many FTSE 250 companies. However, with so many people potentially waiting on the side-lines for the right moment, I suspect the housing market could see some major activity in the coming years. Rightmove appears to be well positioned to benefit from this, so I’ll be adding it to my watchlist.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Gordon Best has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Growth Shares

The FTSE 100 could hit 9,000 points by year end. Here’s why

Jon Smith talks through some factors that could help to lift the FTSE 100 to a new all-time high and…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

I’d seriously consider buying this UK technology small-cap stock today

Today's positive trading figures and a runway of growth potential ahead make this small-cap stock look attractive to me now.

Read more »

Investing Articles

It’s October! Does this mean UK stocks are going to crash?

Whisper it quietly, but four of the five biggest one-day falls in the FTSE 100 have been in the month…

Read more »

Investing Articles

With new nuclear energy deals in view, Rolls-Royce’s share price looks cheap to me anywhere under £11.48

Rolls-Royce’s share price dipped after a problem on a Cathay Pacific flight but has now bounced back on positive news…

Read more »

Investing Articles

Is the Greggs share price now a screaming buy for me after falling 10% this month?

Harvey Jones watched the Greggs share price climb and climb, but decided it was too expensive for him. Should he…

Read more »

Young black colleagues high-fiving each other at work
US Stock

3 super S&P 500 stocks that could smash global ETFs over the next 5 years

History shows that allocating some capital to top S&P 500 stocks can significantly boost an investor's financial returns over the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

This FTSE 250 insider’s selling but 2 brokers say “buy”. What’s going on?

A director of this FTSE 250 retailer has sold £114m of stock but brokers rate its shares a Buy. Our…

Read more »

Investing Articles

With a P/E of 7.7 is the Lloyds share price back in deep bargain territory?

Harvey Jones has enjoyed watching the Lloyds share price rise and rise over the last year, while its dividends are…

Read more »