Shares in Rightmove (LSE:RMV) have fallen by 20% over the last month, putting the FTSE 100 stock at a 52-week low. I think the opportunity looks too good to miss, and investors should consider buying it now!
The share price has been falling as news of a potential challenge to the company’s dominant market position has been emerging. But I think this is an opportunity to be greedy where others are fearful.
Why is the stock going down?
Rightmove is an impressive business by anyone’s standards. Its earnings per share have more than tripled over the last decade, and its low capital requirements allow it to distribute most of its cash to shareholders via dividends and share buybacks.
This is all good, so why is the stock going down? The reason is that a lot of the company’s impressive performance comes from its dominant market position – and the firm has a new competitor.
US-based CoStar Group has announced a deal to buy OnTheMarket – another UK platform. That gives Rightmove a UK competitor that is around eight times its size, which is something it’s never had to contend with before.
The most obvious threat is that a competitor might provide a cheaper offering to estate agents. This would put pressure on Rightmove’s impressive margins going forward.
That’s why the stock has fallen by almost 20% over the last month. But I think there is one big reason why this looks like a buying opportunity, rather than a cause for concern.
Should investors be worried?
I don’t think disrupting Rightmove’s position is going to be difficult for anyone – even a firm as big as CoStar. The company’s business is protected by a network effect that isn’t going to be easy to compete with.
Estate agents list their properties with the UK’s largest property platform because that’s where buyers go to look for houses. Convincing vendors to advertise their properties elsewhere without the same customer base is going to be a real challenge.
Equally, the reason that buyers go to Rightmove to search for properties is that it’s where most agents advertise. So attempting to bring buyers to a different platform without the same base of properties is also going to be difficult.
In other words, competitors face a dilemma. It’s hard to attract buyers without having sellers on the platform and it’s hard to attract sellers when buyers aren’t already looking.
I think this will make Rightmove’s market position hard to displace. The company isn’t a commodity business offering an undifferentiated product – it offers something to both buyers and sellers that is hard for a rival to replicate.
Time to buy?
The first article I wrote for Fool (in January 2022) was about Rightmove shares. I argued the business looked great for a number of reasons – including its competitive advantage – but I thought the stock was prohibitively expensive at 764p per share.
Back then, I concluded that the stock should go on my watchlist while I waited for a better price. With the stock down 40% since then, I think there’s now an opportunity for investors to consider buying a top FTSE 100 stock at a great price.
