The FTSE 100 giant, Rightmove (LSE:RMV), is the largest UK online property website. It’s the home for rentals and purchases from across the country.
It may be a website we all know well, but relatively few may consider investing in it. There are risks, and it pays to be aware of them. In this article, I’ll analyse if Rightmove is the right move for my value and growth portfolio.
Strong financials
The company’s 10-year average revenue growth is at 11.90%, and the 10-year average total price return is 7%. That’s strong, but there are stronger options out there…
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Off the bat, I know I’m not getting above-index returns from Rightmove. I am most likely getting stable growth.
The company’s operating margin is 71%. That’s better than 99% of companies in the Interactive Media business. Not bad.
However, let’s be honest, this isn’t a growth company anymore. The operating margin has actually been stagnant since December 2013. I don’t like the sound of that.
Maybe we can forgive it. That operating margin is astronomically high.
The return on invested capital (ROIC) is 416% and the weighted average cost of capital (WACC) is 8.4%. That compares the return on capital invested versus the cost needed to raise capital to invest. That’s a stellar ratio, and very rare.
I’m blown away by some of those strong financial metrics, but others let down my hopes. Perhaps the valuation can make up for that?
Uneasy valuation
Based on Benjamin Graham and Warren Buffett’s attested discounted cash flow analysis, Rightmove is not trading at a discount. In fact, by my analysis, the company has a margin of safety of -18%. That’s more like a margin of danger.
Let’s not forget, however, that discounted cash flow analysis isn’t everything.
The company’s price-to-earnings (P/E) ratio is 23.5. That is at the very low end it has been over the past 10 years, with a range from 21.5 to 62.7. That’s a good sign that the company isn’t selling too high at present in comparison to historical prices.
Is it the right move?
I’m torn. On one hand, there are some stellar financials that make the company strong. I love the high return on invested capital percentage. My main issue lies in the valuation at the moment from a discounted cash flow perspective.
I would say the company is a relatively stable investment for my portfolio. However, it isn’t a dominant move to make. It’s only worth a small allocation. Considering that, it’s a move not worth making at all in my opinion.
I like to wait for the big opportunities and pounce on them when the time is right.
That’s why I’ll be analysing more FTSE 100 value and growth shares in articles to come. I’ll be showing you the best and safest investments I’ve found for my portfolio. There are companies that have financials and valuations impossible that I find to beat.
Conclusion
This Footsie real estate giant isn’t the right move for me to make in my meticulous value and growth portfolio. I’m looking for the really low valuations and the stellar financials to boot. Those companies are out there.
Want to know one I recently invested in, which is also in the FTSE 100? RS Group.
