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Analysts aren’t fond of Rightmove (LSE: RMV) stock at the moment. How do I know? I’m going by the number of Sell ratings. While other big names like BT or Vodafone creep up towards 30% of all analysts giving the thumbs down, few stocks (from my digging around, at least) has more Sell or Strong Sell evaluations as a percentage from the analysts.
This suggests that, in the analysts’ view at least, Rightmove might be one of the worst stocks on the London Stock Exchange to buy right now. But if you ask me, I think they’re wrong. Here’s why.
Bear case
First off, let’s see what the analysts are saying. Why are they so bearish?
The primary concern is that of competition. From one angle, this comes by way of artificial intelligence (AI). The worry is that users will use large language models to more effectively find houses to buy or rent. Other AI-affected stocks like RELX or Experian have lost a third of their share prices in the last year because of what’s being termed the ‘SaaSpocalypse’. By contrast, Rightmove is down 37%.
A further headache comes by way of new and bigger rival (with $12bn market value) Costar Group which operates similar websites in America and Europe. Analysts have highlighted this company’s intentions to dominate the UK market with Rightmove as the primary target. The group purchased competitor OnTheMarket and is already spending big to promote it.
Plenty to chew on, then. So why do I think they could be wrong?
Network effect
The simple answer is that Rightmove has withstood competition so far.
Membership is still increasing. Time spent on the platform crept up in the last reporting period. Revenue grew 9% year on year. And margins are staying wider than anywhere else on the Footsie – still in the range of 70% operating profit margin.
Is this likely to continue? I think it could. For one, Rightmove has the ‘network effect’ on its side. This is when a platform dominates because it already has an entrenched user base. For example, when everyone you know is on Instagram, you’re probably going to go to that as your photo-sharing app of choice.
In Rightmove’s case, there’s a huge advantage to already being the number one name for estate agencies and house buyers. And that’s an advantage that even the latest and greatest in AI chatbots don’t have (possible intellectual property theft notwithstanding).
It’s worth saying that while Rightmove does have a litany of analyst Sell ratings, it has plenty of Buy ratings too. The most optimistic has slapped a price target with a 59% increase on its current value over the next 12 months. Not bad, eh? For this and other mentioned reasons, I think the stock is worth a look.
Should you invest £5,000 in Rightmove Plc right now?
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John Fieldsend does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
