FTSE 100

Can Rightmove’s shares keep rising?

Are further gains ahead for the Rightmove share price?

Since the March 2020 stock market crash, the share price of Rightmove (LON: RMV) has gained around 65%. By contrast, the FTSE 100 index (INDEXFTSE: UKX) has risen by around 45% over the same period.

Clearly, the company has benefitted from a resurgence in the UK property market. Lockdown measures caused by the pandemic appear to have prompted some homeowners to sell up and change their lifestyle. Meanwhile, the property market has been catalysed by a fall in interest rates that has made it easier for first-time buyers, and movers, to access the funds they require via a mortgage.

However, the prospects for Rightmove have changed materially over recent months. The UK is now experiencing its highest rate of inflation since the global financial crisis. The Bank of England believes that inflation will reach 6% in April. This has already prompted a rise in interest rates that is widely expected to continue in the coming months. This has the potential to cool the housing market and cause more challenging trading conditions for the thousands of estate agents that Rightmove counts as its customers.

Of course, a more uncertain industry outlook appears to have been factored in to some extent via a decline in Rightmove’s share price. Indeed, it has fallen by around 12% since the start of the year. However, it continues to trade on a relatively rich valuation. It has a forward price-earnings ratio of 33. And, with earnings per share forecast to rise at an annualised rate of around 9% over the next two years, it would be unsurprising for the firm’s valuation to come under further pressure in the short run –especially if interest rate rises cause a slowdown in the housing market.

That said, on a long-term view, Rightmove’s shares could offer growth appeal. It has a dominant position in the online estate agency market that could become even stronger should a slowdown cause challenges for its rivals. The firm’s solid financial position, on a relative basis, could allow it to further expand its market share. And, with a significant amount of innovation planned, the long-term prospects for the firm appear to be sound.

In the short run, though, a more difficult outlook for the housing market could weigh on the firm’s share price. As such, a similar level of outperformance of the FTSE 100 as that achieved since March 2020 may be a little optimistic.

Not Investment Advice Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.

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