£2k to invest? I’d buy this FTSE 100 stock that’s turned £1k into £14k

This FTSE 100 tech stock has already made investors rich and it could keep rising, says this Fool.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

FTSE 100 tech group Rightmove (LSE: RMV) has conquered a small section of the online world in a very short space of time. Online property portals didn’t really exist 15 years ago. However, viewing property digitally has become a significant business in recent years. Rightmove is now one of the UK’s most popular websites.

Most popular

The company’s growth has been staggering since inception. Incorporated in 2007, Rightmove has since become the 42nd most popular digital service in the UK today, attracting around 130m visits to its sites every month. It’s more popular than the BBC News website and iTunes.

Rising customer numbers have helped the company’s profits surge. Over the past six years alone, Rightmove’s earnings per share have grown at a compound annual rate of nearly 20%.

More importantly for investors, the stock price has charged higher. Over the past decade, shares in Rightmove have returned around 31% per annum, turning every £1,000 invested into £14,000.

First-mover

This trend seems likely to continue because Rightmove has the first-mover advantage in its market. You see, because the firm is the largest property portal in the UK, and virtually everyone knows of it and how to access its website, it would be almost impossible for a competitor to take over. Indeed, a whole range of competitors has tried. Most have failed.

Zoopla is its nearest challenger, attracting around 50m visitors per month to its websites. But that’s less than half the number of visitors that view Rightmove’s offering.

That said, the one weak point in the Rightmove business model is that it doesn’t sell properties. It relies on agents to pay a fee to list on its platform. If these agents stop paying the company for its services, earnings will slump.

However, agents are unlikely to turn their backs on the company while it remains the UK’s top property website. And, as mentioned, with the closest competitor not even halfway to overtaking Rightmove, it doesn’t look as if this will happen any time soon.

Handsome returns

Therefore, it looks as if this investment can continue to produce healthy returns for investors for many years to come. The stock is currently trading at a price-to-earnings ratio of 33.8, which looks expensive. Nevertheless, considering Rightmove’s competitive advantage, long-term growth, and operating profit margin of 73%, this seems to be an appropriate valuation for the high-growth tech business.

In addition to all of the above, the company is also highly cash generative. At the end of its last financial period, it reported a net cash balance of £42m. Management is returning this cash to investors with share buybacks and dividends. The dividends yield currently stands at 1.1% and, over the past six years, Rightmove has repurchased 10% of its outstanding shares.

These buybacks have helped turbocharge earnings growth. As cash continues to flow into the group’s coffers, further returns are likely. This only increases the appeal of the company and help justify that high valuation.

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.

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.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »