Residential real estate has been hot in the past year. For example, year-to-date, the and the are up nearly 15% and 21.5% respectively. Likewise, the index is up nearly 12% so far this year.
There is a green light for most fundamental metrics from companies in the industry. As a result, investors have been paying close attention to homebuilders' stocks, real estate investment trusts (REITs), as well as online real estate platforms, not only in the US, but also across the pond, including in the UK
That's why today we discuss the London-based member and leading real estate portal Rightmove (LON:) (OTC:). In March 2020, the stock price went into free fall. But since then, the shares have recovered. In the past year, RMV stock has returned about 5.9%. But YTD, stocks are down 4.6%.
Rightmove shares closed on June 10 at 634.2 pence ($17.77 for US-domiciled stocks). The 52-week price range was 523.08p-690p ($13.29 – $18.35 for US-domiciled stocks).
The current price supports a dividend yield of 0.72%, and the market cap is £5.35 billion (or $7.55 billion). real estate marketplace, was founded in 2000 and listed on the London Stock Exchange in 2006. Over the past two decades, management has built a successful business to make rightmove.co.uk the number one UK property portals. Competitors include zoopla.co.ukprimelocation.com and onthemarket.com.
The group currently serves approximately 20,000 clients, including real estate agents, rental agents and developers of new homes. In other words, Rightmove makes money by charging these customers to use its platform. It operates through three segments, including agency, new homes, and others (such as overseas, commercial real estate, and non-proprietary advertising services).
After the outbreak of the pandemic, Rightmove initially offered a 75% discount to customers between April and July. Since then, various levels of discounts have continued. While these discounts have impacted sales, they have nevertheless helped the group avoid loss of customers.
Rightmove released full year 2020 on March 26. Turnover was £205.7 million (or $289.9 million), down 29% year-on-year (YOY). Operating profit of £135.1 million (or $190.4 million) represented a 36.8% year-over-year decline. Basic earnings per share also declined 35.7% year-on-year.
The cash balance at the end of the year was £96.7 million (or $136.3 million), up 166% year-on-year. While investors were happy with an operating margin of 66%, that statistic was 74% a year ago.
Chairman Andrew Fisher, pleased with the results, noted:
"Making the tough decisions to save cash in 2020 has, I believe, helped to preserve liquidity while supporting the investment in the technology and resources needed to create long-term shareholder value. "
RMV stock forward P/E and P/S ratios of 30.12 and 26.44 indicate frothy valuation levels by historical valuation levels. In other words, there is little margin of safety.
Starting point
Rightmove has built a strong brand over the past decade, delivered impressive earnings growth and created shareholder value. It has benefited from the increasing interest in property and home ownership in the UK. Many Brits spend a lot of time on the platform when looking for a property to rent or buy.
RMV shares, however, are not a low-cost investment opportunity at this time. Recent price increases reflect the strength of the UK housing market. As Rightmove's business is domestic, a potential weakness in the local real estate market could negatively impact revenues. For example, a rise in interest rates could destabilize the UK housing market. Therefore, a drop to the 600p level would improve the risk-return profile of a long-term investment in RMV stock.
Long-term, however, we are optimistic about Rightmove stocks. Investors looking to invest in Rightmove through an exchange-traded fund (ETF) may also want to consider researching the iShares MSCI United Kingdom Small-Cap ETF (NYSE:).
Finally, there are several ETFs that focus on both US and global real estate investment stocks that may be of interest to some readers. They include:
iShares Global REIT ETF (NYSE:) — up 20.3% YTD;
The Real Estate Select Sector SPDR Fund (NYSE:) — up 23.8% YTD;
Vanguard Real Estate Index Fund ETF Shares (NYSE:) — up 23.3% YTD;
Xtrackers International Real Estate ETF (NYSE:) — up 12.6% YTD.
