High earnings estimates and a cheap price leave me convinced this is a winning growth stock

This leading property platform looks like an exceptional growth stock to Oliver Rodzianko. Analysts are expecting the great results to continue, too.

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Key Points

  • Rightmove is a top UK property platform, with 98.4% of revenue from Britain and nearly 100m visitors last month.
  • It boasts a strong financial position with a 56% net income margin and expected earnings growth of 11% annually.
  • Facing challenges like potential recessions and the need for AI integration, its strengths still appear to outweigh the risks.

There are some businesses in the UK that I deem to be exceptional, and this is one of them. Right now, I consider it both a growth stock and a value opportunity. Let’s take a closer look at why, while also getting a proper understanding of the risks.

The king of British property platforms

Rightmove (LSE:RMV) is likely a company that most people have heard of if they live in Britain. But it doesn’t only help people find UK houses; it also lists international properties. But 98.4% of its revenue is from Britain and 1.6% from the rest of the world.

Did you know the firm is ranked as the leading real estate website and the 12th most popular website overall in the country? Additionally, it had almost 100m visitors last month.

Its major competitors, ranked in order of popularity in the UK based on total website visitors last month, are as follows:

  • Zoopla: 31.6m
  • OnTheMarket: 20.5m
  • OpenRent: 5.7m
  • PrimeLocation: 4.1m

Stable, growing, and profitable

I was immediately happy to see that the business had such a strong balance sheet. What this means is that because the company isn’t overburdened with debt, it can expand more effectively. Additionally, in the unfortunate event of a wider recession or a downward trend in the housing market, the company is stable enough financially to take on some debt without causing too much long-term damage.

But that’s not all I love about the business. It also has a stellar 56% net income margin, which is almost unheard of in the interactive media industry, let alone for real estate agencies.

And while its earnings growth rate is a tad slow at the moment, analysts are expecting this to pick up somewhat. The consensus is that over the next three years, earnings per share will compound at around 11% annually.

It’s also on sale

Some readers may find that the share’s price-to-earnings ratio of nearly 24 doesn’t look cheap at first glance. But, I believe it is when we also take into consideration that over the past 10 years, the shares have had a ratio of around 30 normally. That indicates a discount of around 20%.

Assessing the risks

As I mentioned above, Rightmove is vulnerable to recessions. Therefore, its net income and revenue could be severely knocked down in the event of, let’s say, a global pandemic. That’s exactly what happened around 2020, with peak negative effects for the firm in 2021. There’s no guarantee a crisis like this won’t happen in the future, perhaps related to global warming, for example.

Additionally, we are about to enter a new age of technology, heavily influenced by artificial intelligence (AI). If Rightmove is not clever enough to integrate and pivot its platform to include these new capabilities, its customers could go elsewhere. I see it likely that new platforms emerge offering catered property search management through AI assistance, which could make Rightmove seem slow and inefficient without it. Therefore, if I invest, I’ll be keeping a careful eye on how the platform develops in this regard.

One of the UK’s best businesses

I consider these shares some of Britain’s best, and they’re right at the top of my watchlist. Although the risks are important to consider, the strengths outweigh them, in my opinion.

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.

Oliver Rodzianko 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.

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