When it comes to growth stocks, the S&P 500’s probably the first place investors look. The UK stock market doesn’t have anything that matches up to Amazon, Nvidia, and Microsoft.
Despite this, there are some quality growth companies in the FTSE 100. And looking where other investors aren’t paying attention is a good strategy for finding a bargain.
UK tech stocks
Rightmove (LSE:RMV) doesn’t have the same scale as the big US tech companies. But I don’t think the quality of the business is in any way inferior.
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First of all, the company’s been growing steadily. Over the last 10 years, revenues have more than doubled and operating margins have consistently been above 70%.
By any standard, that’s impressive. But the really impressive thing about the business is that it’s managed to achieve this without having to reinvest the cash it generates.
Rightmove’s largely an online operation, which means it doesn’t have to use its profits for replacing machinery or upgrading properties. And this is a big positive for shareholders.
This means 90% of the cash the company generates through its operations becomes available to investors. And the firm keeps growing while paying dividends and buying back shares.
That’s a powerful combination. And while the share price has largely gone sideways over the last five years, I think the business is still in a strong position.
Risks and rewards
Rightmove’s attractiveness is built on its competitive position. It’s the UK’s largest online property marketplace by far and this allows it to maintain such huge margins.
Investors should note however, that the competitive threat has been ramping up recently. CoStar Group – the US property data and analytics firm – has set its sights on the UK market.
Rightmove won’t be easy to disrupt. As the UK’s largest platform, it should continue to appeal to buyers and sellers and rivals have previously found it hard to attract one without the other.
Despite this, I don’t think either the company or its investors should be complacent. CoStar’s a much bigger business and its knowledge and resources should be taken seriously.
Closer to home, there are also other issues to consider. Inflation looks like it’s picking up again and this could dampen activity in the property market, which is where the firm gets its revenues.
It would be unwise to pretend investing in Rightmove doesn’t come with risks. But while it retains its market-leading position, I think the business has good scope for growth.
One for the watchlist
At a price-to-earnings (P/E) ratio of 26, Rightmove shares aren’t exactly being overlooked. But they’re clearly better value than they were five years ago.
Even compared to the likes of Alphabet and Meta, the business has maintained huge operating margins. And it’s shown the ability to grow while distributing cash to its shareholders.
This all comes from Rightmove’s dominant market position. While this remains intact, I think it should at least be on the ‘under consideration’ list for investors looking to for stocks to buy.
