The FTSE 100 has some outstanding growth stocks. But could Rightmove (LSE:RMV) be the most attractive of the lot right now?
Source: Fiscal.ai
The stock trades at a price-to-earnings (P/E) ratio of 16. And from 2030, the firm’s targeting 15% annual earnings per share (EPS) growth.
Why’s the stock so cheap?
Rightmove shares have crashed – and I mean crashed – 38% in the last six months. So investors have to wonder what the catch with those numbers is.
The firm released its annual financial report at the end of February, describing solid growth in both sales and profits, with strong operating margins.
It also announced £140m in returns to shareholders through dividends and share buybacks. That’s around 4% of the company’s current market value.
All of that’s pretty good – and it might even justify buying the stock at today’s prices. But it isn’t what investors are worried about right now.
Artificial intelligence
The forecast 15% EPS growth from 2030 looks great. But to get to that point, Rightmove’s planning on spending a lot on artificial intelligence (AI). That means for the next few years, EPS growth’s going to be more like 5%. That’s much lower – and below the firm’s recent average.
The company expects a huge return on these investments over time. But investors do need to ask themselves how plausible this is? If everything goes to plan, buying the stock at a P/E ratio of 16 today could be a brilliant move. The important word there though, is ‘if’.
‘If’
AI’s going to change a lot of businesses. And it might be the kind of development that comes once in an investing lifetime. The big question for Rightmove is whether it’s an opportunity or a cost. But it’s impossible to know for sure at this stage.
In a sense, the firm’s like Amazon or Microsoft right now. It’s investing big in AI and the market doesn’t like it. That’s why the stock’s trading at an all-time low (P/E) ratio. And investors might not get the chance to buy at this level again.
Insider buying
A P/E ratio of 16 suggests the stock market doubts that Rightmove is going to meet its medium term targets. And they might be right. One thing worth noting though, is that it’s not just the company that disagrees: some key insiders are also confident.
CEO Johan Svanstrom recently bought £20,000 worth of shares and non-exec director Lorna Tilbian invested £1,000,000!
Exactly why they’ve done this only they can say. But whatever the reason, it’s a strong sign of confidence in the business.
Options
Insider buying is an encouraging sign, especially in large amounts. Investors though, need to make their own minds up about the stock.
There’s a lot of uncertainty about what AI means for the firm. But if it hits its targets, the stock could be a rare opportunity. Whether it’s a once-in-a-lifetime one remains to be seen.
Rightmove, however, isn’t the only stock that’s been falling. And in my own portfolio, I think I can find even better shares to buy right now.
