This top-performing FTSE 100 company could be 30% undervalued

Oliver thinks this FTSE 100 online real estate platform is an exceptional growth and value investment. But there could be risks of market saturation.

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I use Rightmove (LSE:RMV) often to search for future places I’d like to live. It’s the leading online platform that aggregates real estate in the UK. It’s also one of the most attractive investments in the FTSE 100, in my opinion.

What I like about this business is that it has developed a strong reputation. Now, as it looks at innovative new growth strategies, it will begin to look at harnessing its platform for other use cases, including commercial real estate and financial services. In many respects, the Rightmove brand might just be getting started.

Is the high growth enough?

Rightmove has around 2bn visits a year, according to its latest annual report. Additionally, over the past 20 years, the firm’s revenues and net income have been growing at an exceptionally fast rate. While this has slowed down a bit recently, I think it might have the opportunity to grow as it did in the past due to exciting new initiatives in leveraging its platform, which I hinted at above.

Despite its strong historical business results, I’m slightly cautious that an investment in Rightmove might not offer the same growth as some other big tech companies. But to compensate, it does offer a reasonably generous dividend, which is usually scant among technology shares.

I like its business moat

In investing, one of the famous terms for a company that has operations that are difficult to compete with is that it has a ‘moat’. In Rightmove’s case, I believe the brand it has built is very difficult to challenge. For instance, when I go online to look for UK property, I search for Rightmove far before I ever end up on Zoopla, OnTheMarket, or PrimeLocation. That’s primarily due to its size, which means it can attract better properties and has a more expansive catalogue. The associated higher revenues can even lead to a better user experience through better platform development in the long run.

A potential value opportunity

As is the case with many high-growth businesses, Rightmove’s valuation isn’t superb on the surface. After all, its price-to-earnings ratio is around 21. That might seem high, but it’s about normal for its industry. And what’s more, over the past 10 years, its median price-to-earnings ratio has been roughly 31. So, I potentially have around a one-third discount on my hands here. That’s especially true because in the past 10 years when the ratio was so high, the shares still kept on growing in price. The reason it’s lower now is because the growth prospects have weakened a bit. But as I mentioned, I think that’s only temporary.

I always risk-assess before deciding

Given that this company has been around for quite some time, I reckon it’s fair to say that its markets are quite saturated. And when we consider overseas markets, most countries already have their own preferred and dominant service providers. There isn’t actually one global, unified online real estate catalogue at the moment, and there’s too much competition overseas for Rightmove to fulfil this role. So, I do think there is some growth risk over decades if Rightmove doesn’t think creatively.

Even given that, the company is strong. Therefore, I am considering investing in it, but I have a few other businesses I’d like to invest in first.

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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