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Is it too late to buy the Rightmove share price?

Putting your money in bricks and mortar is often cited as sensible advice. But with tax implications penalising personal property investors since 2016, the illiquid nature of the holding, and the upfront cost for the deposit, I’ve long thought that investing in a Stocks and Shares ISA is a better bet than a buy-to-let investment.

Usually, I feel more comfortable steering away from technology stocks. The businesses can often take a long time to turn a profit, and there is always someone waiting to advance and disrupt the industry. With that in mind, I thought it was worth investigating whether Rightmove (LSE: RMV) shares were worth buying.

If you’ve purchased a property in the past few years, I would be willing to bet that you probably used Rightmove to help find your dream abode. In the first half of 2019, Rightmove was visited 845m times, with customers spending 6.5bn minutes on the web, mobile, and app platforms. Estate agents are aware of its popularity. The company makes its money by charging agents a fee to advertise on its platform.

For sale?

Over the past year, the Rightmove share price has increased by 22%, outperforming the FTSE 100, which is close to breaking even over the year at the time of writing. The surge in the valuation of the stock means the price-to-earnings ratio is 28, which is a figure that will struggle to get value investors excited.

With its strong market position, is Rightmove immune from the competition? As the business charges estate agents on a per-office location basis, rather than when a property is advertised on the platform, this should ease investor’s concerns about fears over a recession or Brexit. However, the pricing does open up competition from the likes of Purple Bricks.

In July, the company reported higher than expected revenue growth of 10%, despite agency branches membership dropping to 16,768. Rightmove has broadened its offering by dealing directly with developers, allowing builders to advertise directly on its site. This currently accounts for just over 26% of Rightmove’s revenue.

Money maker?

Unusually for what is essentially a tech company, Rightmove is making money. Profitability has increased year on year. In its half-yearly results, its posted profit was £108m this year, compared to £98m in 2018.

My concern for the business is future growth. The platform might be the first place that home-buyers search, but has the company now saturated the market? This part of the industry could be ripe for a disruptive entrant, too.

Of course, with times good and the share price going upwards, investors will be happy. Rightmove has also increased its dividend by 12%, though it is still yielding only 1.2%.

I worry that an uncertain housing market could affect the company’s stock price, but will keep an eye open to see how it hopes to achieve growth in future years. While I believe the company is performing well and has a strong foundation, the stock does not offer the qualities I look for in a value or defensive stock at the moment. For now, I’ll pass.

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T Sligo has no position in any of the shares mentioned. 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.