Picture supply: Getty Pictures
The FTSE 100 hit file highs earlier this week, with some shares throughout the index additionally hitting recent 52-week highs. Regardless that there are nonetheless some good worth picks to be discovered, I’ve noticed one FTSE 100 inventory I believe’s too overvalued for me to think about proper now.
Wanting on the numbers
I’m referring to Rightmove (LSE:RMV). The UK’s main on-line property portal has a comparatively easy enterprise mannequin. It connects residence consumers, renters, and builders (making the positioning free for them to make use of) with property brokers, landlords, and builders (who pay to record properties and for promotional instruments).
The inventory’s at its highest stage since January 2022. At 778p, it’s not far-off from the all-time highs of 800p from late 2021. It’s not simply the value that makes it probably overvalued. In comparison with the earnings per share, it offers a price-to-earnings (P/E) ratio of 31.97. That is nearly double the ratio for the FTSE 100 as a complete.
Some would possibly say that I’m higher off evaluating the ratio to corporations in the identical space, reasonably than the broader market. Once I do that, issues aren’t significantly better. If I have a look at housing builders like Taylor Wimpey, I notice the P/E ratio of 14.59. On this case, the inventory’s nicely away from 52-week highs and appears a way more enticing option to get publicity to the property market.
An alternate manner could be not a homebuilder however reasonably one other tech firm that gives a portal for shoppers. Trainline could be an instance of an identical firm on this regard. It has a P/E ratio of 20.97. So in each circumstances, Rightmove seems overvalued to me.
Justifying the value
It’s true that there’s nothing mistaken with inserting a excessive worth on an organization if it could possibly proceed to outpace investor expectations. But the most recent replace in Could noticed the administration crew affirm the outlook for income development of 8%-10% for this 12 months. It’s not unhealthy, nevertheless it doesn’t have a wow issue. The enterprise expects a 1% enhance in member numbers for the 12 months.
Once more, I battle to see how explosive development will happen right here to justify the premium set on the present share worth.
I may very well be mistaken, with synthetic intelligence (AI) being one issue that might speed up progress. Rightmove not too long ago launched an AI-powered remortgage mannequin and built-in AI options into the positioning’s performance. This might assist pace up the property-finding course of, making the enterprise extra environment friendly and worthwhile.
I’ll have to attend and see how the remainder of the 12 months pans out for Rightmove. I’m constructive on the property sector normally, however assume I can discover a lot better-value choices (like Taylor Wimpey) to precise this view.
