Rightmove (LSE: RMV) is one of the handful of tech champions listed in London today. Over the past decade, this business has carved out a niche in the property market and today it’s the go-to site for both home buyers and sellers.
As the company only connects buyers with sellers and doesn’t get involved in property transactions, it doesn’t have to worry about the state of the property market or any of the other uncertainties that come with buying and selling homes.
Instead, all Rightmove does is sit back and collect fees from sellers. As a result, the company has some of the best profit margins of all the businesses listed on the London market.
Last year, it reported an operating profit margin of 74%, and a return on capital employed — a measure of profitability for every £1 invested in the business — of just under 800%.
As the company has grown over the past decade, it’s become a fundamental part of the UK property market and, as more and more consumers look to Rightmove, net profit has jumped. From just £74m in 2013, analysts are expecting the firm to report a net income of £176m for 2019, a compound annual growth rate of more than 16%.
As well as this explosive earnings growth, Rightmove is also returning money to investors with share buybacks and dividends. Analysts believe the company will distribute 7p per share in dividends for 2019, giving a yield of 1.2%. The payout has grown by more than 100% in five years.
At the time of writing, shares in this growth champion are trading at a forward P/E of 28, which is slightly above what I’d usually be prepared to pay for any stock.
However, considering Rightmove’s position as a market leader, highly impressive profit margins, and historical growth rate, I think that’s a price worth paying for this FTSE 100 growth champion.
If Rightmove is too pricy for you, shares in Greggs (LSE: GRG) could be an alternative, with the baked goods retailer growing earnings at an average rate of 22% per annum for the past six years.
City analysts don’t expect this trend to slow down anytime soon. Earnings growth of 16% is projected for 2019 and it looks as if it’s well on the way to exceeding this target.
In a trading update published today, Greggs reported sales growth of 12.4% for the six weeks to 9 November. Like-for-like sales also jumped by 8.3%. Following this robust performance, management now expects full-year profit before tax, excluding exceptional charges, to be higher than previous expectations, although the trading statement doesn’t declare previous profitability targets.
Still, the fact that management now thinks the company is growing faster than expected is highly impressive, in my opinion. That’s why I believe this stock could be an attractive addition to your portfolio today.
The company is growing almost as fast as Rightmove, but it commands a much lower multiple. Indeed, the stock is trading at a forward P/E of 21 at the time of writing (based on old forecasts). There’s a dividend yield of just under 3% on offer for income investors as well.
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Rupert Hargreaves owns no share 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.