The FTSE 100 hit record highs earlier this week, with some shares within the index also hitting fresh 52-week highs. Even though there are still some good value picks to be found, I’ve spotted one FTSE 100 stock I think’s too overvalued for me to consider right now.
Looking at the numbers
I’m referring to Rightmove (LSE:RMV). The UK’s leading online property portal has a relatively simple business model. It connects home buyers, renters, and developers (making the site free for them to use) with estate agents, landlords, and developers (who pay to list properties and for promotional tools).
The stock’s at its highest level since January 2022. At 778p, it’s not far away from the all-time highs of 800p from late 2021. It’s not just the price that makes it potentially overvalued. Compared to the earnings per share, it gives a price-to-earnings (P/E) ratio of 31.97. This is almost double the ratio for the FTSE 100 as a whole.
Some might say that I’m better off comparing the ratio to companies in the same area, rather than the broader market. When I do this, things aren’t much better. If I look at housing developers like Taylor Wimpey, I note the P/E ratio of 14.59. In this case, the stock’s well away from 52-week highs and looks a much more attractive way to get exposure to the property market.
An alternative way would be not looking at a homebuilder but rather another tech company that provides a portal for consumers. Trainline would be an example of a similar company in this regard. It has a P/E ratio of 20.97. So in both cases, Rightmove appears overvalued to me.
Justifying the price
It’s true that there’s nothing wrong with placing a high value on a company if it can continue to outpace investor expectations. Yet the latest update in May saw the management team confirm the outlook for revenue growth of 8%-10% for this year. It’s not bad, but it doesn’t have a wow factor. The business expects a 1% increase in member numbers for the year.
Again, I struggle to see how explosive growth will occur here to justify the premium set at the current share price.
I could be wrong, with artificial intelligence (AI) being one factor that could accelerate progress. Rightmove recently launched an AI-powered remortgage model and integrated AI features into the site’s functionality. This could help speed up the property-finding process, making the business more efficient and profitable.
I’ll have to wait and see how the rest of the year pans out for Rightmove. I’m positive on the property sector in general, but think I can find much better-value options (like Taylor Wimpey) to express this view.
