The Rightmove (LSE: RMV) share price is up significantly this morning (2 September). As I write this, it’s 24% higher than Friday’s closing price.
As a long-term investor in Rightmove, I’m obviously very happy with this jump. But what’s the best move to make now? Should I sell my shares and take my profits off the table or hold on to them?
Why the shares have soared
The reason the share price has popped today is that overnight, it came to light that Australian property search firm REA Group (which I’m also an investor in) is considering buying Rightmove in a cash and share offer.
REA Group says that it sees a “transformational opportunity” to apply its capabilities and expertise, and create a global and diversified digital property company with number one positions both in Australia and the UK.
It’s worth pointing out that the Australian company has not yet approached, or had any discussions, with Rightmove. And it has noted that there’s no guarantee an offer will be made.
However, REA Group now has to either lodge a firm bid for Rightmove or back out by 30 September, due to UK takeover rules.
The right move now
I’ve been in this kind of situation many times before. And it’s always a little hard to know what to do.
Selling my Rightmove shares now could look smart if no offer ends up coming through and the share price falls back to lower levels.
But it could be a huge mistake if Rightmove is able to negotiate a higher offer or other bidders emerge and the share price surges even higher.
Still cheap?
Looking at the fundamentals here, I’m going to hold on to my Rightmove shares for now.
Next year, the company is forecast to generate earnings per share of 29.3p. So, at the current share price of 689p, the forward-looking price-to-earnings (P/E) ratio is only 23.5.
That strikes me as a little low for a takeover here.
This is a company that has:
- An extremely strong brand and market position
- A brilliant long-term growth track record
- A very high return on capital (it’s one of the most profitable companies in the entire FTSE 100 index)
- A rock-solid balance sheet
- Rising dividends
So, I think it deserves a higher valuation.
I’d actually be a little disappointed if Rightmove was to agree to a takeover at current prices.
I also wouldn’t be surprised to see other bidders emerge given Rightmove’s market position and treasure trove of data.
Other international property companies that could be interested in the company’s assets. As could private equity firms and technology companies like Amazon.
One other thing worth mentioning here is that the shares have traded at higher levels in the past. Back in late 2021, they rose to around 800p. This is another reason I’m going to hold for now.
Risk versus reward
Now, this strategy could backfire on me. As I said earlier, there’s no guarantee that a bid will come through. REA Group could do more research, find something that it doesn’t like (such as rising levels of competition in the UK property search market), and back away from an offer.
But even if that did happen, I’d be comfortable owning the shares. This is a high-quality company and I’d expect the stock to do well for me over the long run.
