It’s been a tough 12 months for Bitcoin investors, as the original cryptocurrency has lost 65% of its value during this time.
I’m sceptical about the outlook for Bitcoin, but I’m not here to give advice on trading cryptocurrencies. Instead, I want to look at two other investments that have both made a lot of money for investors over recent years.
The UK’s most profitable business?
You probably won’t be surprised to learn that I prefer to put most of my investment cash into stocks and shares. One company I rate very highly for long-term growth is property listing firm Rightmove (LSE: RMV).
I’m not alone in this. Star fund manager Terry Smith recently added Rightmove shares to a new fund he’s launched, focusing on small and medium-sized companies.
Fundsmith boss Mr Smith only invests in companies that enjoy high profit margins and sustainable advantages. In my view, Rightmove ticks both these boxes. Friday’s full-year results revealed that the group generated an operating profit margin of 74% last year.
Total domination
This amazing figure is possible because this company dominates the online property listing market.
Even though property market conditions are uncertain, Rightmove’s website visitor numbers rose by 4% to average nearly 132m per month in 2018. Time spent on the site rose by 5% to more than 1bn minutes per month.
Estate agents have no choice but to list their properties on Rightmove. And the company understands this. The firm’s operating profit rose by 11% last year, mostly because the average monthly revenue collected from each of the firm’s advertisers rose by 9% to £1,005.
Agents are said to be unhappy with Rightmove’s ever-increasing prices. A number of big agencies have grouped together to launch a cheaper rival service, OnTheMarket.com. They may succeed, in which case I’d expect Rightmove’s profits to fall sharply.
But for my money, Rightmove’s domination of the market is so complete that rivals are unlikely to be able to gain enough momentum to rival the market leader.
That’s why I continue to rate these shares as a buy at current levels. In my view, a price tag of 25 times forecast earnings isn’t too much to pay for such a profitable and dominant business.
Is this the next Rightmove?
I don’t invest in many small-cap growth stocks. One reason for this is that their valuations often rely on ‘jam tomorrow’. Either the shares appear hugely expensive, or the business has shaky financials which might result in future problems.
One rare exception to this rule is D4T4 Solutions (LSE: D4T4), a company which I do own. Formerly known as IS Solutions, this company specialises in “data platform solutions” such as customer analytics and enterprise data management.
The group’s client lists includes a lot of big names, such as HSBC, Australian airline Qantas and the NHS.
It’s highly profitable, with an operating margin of 22% last year. And unlike some small-cap tech firms, these profits are backed by very strong cash generation. The group reported a net cash position of £12m at the end of September.
Earnings are expected to grow by about 10% in both 2019 and 2020. With the shares trading on 18 times forecast earnings and offering a modest 1.3% yield, I think there’s a lot of room for growth here. The shares remain a buy, in my view.