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This Terry Smith-owned FTSE 100 stock is up 16% in 2019. Here’s why I think it could keep rising

Back in December, I noted that portfolio manager Terry Smith and his team at Fundsmith had been buying shares in property website Rightmove (LSE: RMV) for his new investment trust, Smithson. At the time, Rightmove was the sixth-largest holding for the new portfolio which suggests the team was confident in its prospects.

So far this year, Rightmove has performed well. Ending 2018 at a price of 432p, the shares have climbed up to around 500p, representing a gain of 16%. Yet looking at the investment case for RMV, I think the stock has the potential to keep moving higher. Here are four reasons why.

Recent results

It recently reported full-year results for 2018 and the numbers were solid given the political and economic uncertainty we experienced in the UK last year. Revenue rose 10% for the year while profits grew faster than this, with adjusted EPS climbing 12%.

Operationally, performance was healthy, with visits up 4% (averaging nearly 132m visits per month) and the time on the site rising 5%. Furthermore, average revenue per advertiser (ARPA) increased £83 to £1,005 per month. Overall market share rose from 73% to 76% (79% for mobile), indicating that it is still the undisputed leader in its industry.

Looking at these numbers, it’s clear that the business is ticking along nicely. And the group said that it “remains confident of making further progress in 2019” which is a good sign for the future.

Growth forecasts

Looking ahead, City analysts are predicting further growth in the year ahead. Consensus forecasts currently have revenue increasing 8% for the year, with EPS and dividends rising 8% too. It’s worth noting that analysts have been upgrading their forecasts over the last few months, which could help boost the stock’s momentum.

Brexit

Reassuringly, the firm believes that it can continue to perform well in the face of Brexit and/or a property market downturn. Management said: “We believe the UK online property advertising market will continue to grow, despite the continuing uncertainties stemming from the result of the EU referendum.” And in relation to the property market cycle, it added: “We remain vigilant to the macro environment, but Rightmove is not materially impacted by the property market cycle except in the most extreme circumstances.”

Reasonable valuation

Finally, another reason that I think Rightmove shares could keep rising is that the stock’s valuation is quite low on a historical basis.

Currently, the shares trade on a forward P/E of 25.4. While that ratio could be interpreted as high by traditional measures, it’s well below levels what RMV has traded at in the past. For example, when I covered the stock back in mid-2016, it was trading on a forward P/E of around 37. The current P/E is nearly 30% below that. I also think it’s quite a reasonable valuation for such a profitable business (return on equity is over 1,000%).

So overall, I believe the shares have the potential to keep rising over time as the company continues to grow. Looking at the investment case, I think there could be plenty more gains to come in the years ahead from this exciting FTSE 100 growth stock.

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Edward Sheldon owns shares in Rightmove. The Motley Fool UK has recommended Rightmove. 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.