The Rightmove (LSE:RMV) share price just fell 12% on Thursday (19 October). I think this is one of the best FTSE 100 businesses around, so could this be a buying opportunity?
The stock is falling due to reports that rival OnTheMarket is being acquired by US-based CoStar Group. This should result in a significant new competitor for the UK’s online property platform.
A strong business
I’ve been an admirer of Rightmove as a business for some time. I used to own shares in the company, but subsequently sold them because the price got to a level that I thought was unjustified.
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The business clearly has some impressive metrics. As an online platform, it has relatively low capital requirements, meaning that a lot of the cash it generates can be used for dividends and share buybacks.
The company’s balance sheet is also first rate, with more cash than debt. This means it’s unlikely to get into difficulties during an economic downturn.
The business also looks to benefit from a strong network effect. Buyers visit the website because it’s where the most properties are listed and sellers list properties there because it’s where buyers look.
That last point is in question right now, though. Investors are concerned that being acquired by CoStar (a company roughly six times Rightmove’s size) will make OnTheMarket a serious challenger?
Should investors be worried?
A change in the competitive landscape is obviously significant for the UK’s largest property platform. But does it justify a 12% drop in the company’s share price?
In my view, the business isn’t worth 12% less than it was before the announcement. I think the market is underestimating the strength of the company’s ability to withstand competitors.
Even with CoStar’s resources behind it, OnTheMarket might well have a difficult time trying to disrupt Rightmove’s position. Drawing customers away from the platform people are used to will be quite a challenge.
More likely, in my view, is that OnTheMarket establishes itself as an additional major player. So instead of just marketing properties on Rightmove, agents would list on both.
That would be a great result for OnTheMarket shareholders. But it would also mean that Rightmove shareholders have little to worry about.
A stock to buy?
In my view, the stock is worth 12% less it was before the announcement. But I also didn’t think it was worth £5.75 per share before.
At the moment, the share price is around £5, which is about what I think it’s worth. In fact, it’s just below the level I sold it at back in May.
In other words, the recent drop has just brought the share price back into line with where I thought it ought to be. As a result, I’m not looking to seize the moment and buy the stock.
I’ll be keeping a close eye on the situation with OnTheMarket though. And if Rightmove shares fall any further, I might well see a buying opportunity.
I’m sticking by the view that Rightmove is one of the strongest FTSE 100 companies and one of the best stocks to own. The latest news doesn’t convince me otherwise.
