I am talking about the FTSE 100 digital real estate marketplace Rightmove (LSE: RMV). It is one of the biggest index fallers today, with an over 5% drop after it released its annual results.
RMV has endured a hard 2020. Its revenues are down 29% for the full-year 2020 and operating profit is down 37%.
I think it is understandable that investors are diffident about the stock today. But in the words of Warren Buffett, I think it is time to get greedy where others are fearful.
Here are three reasons why.
#1. Rightmove’s pre-pandemic performance was strong
Before the corona-crisis occurred, RMV was a financially healthy company with growing revenue and profits. So I see 2020 as an aberration for the FTSE 100 stock. In fact, based on its past, I see hope for it to come back.
It is already evident that its performance improved in the second half of 2020 already. In the first half, its revenue decline was 34%. By year end the extent of the decline had decreased by 5 percentage points to 29%. A similar trend is evident for operating profit too, which is a positive.
#2. The return of housing market activity
As per the Office of National Statistics, house prices grew by 8.5% in the UK during December. This is the fastest growth in over six years.
Housebuilders ranging from FTSE 100 biggies like Barratt Developments to FTSE 250 ones like Vistry Group have expressed optimism about 2021 based on their order books for the year. This further confirms upbeat trends in the housing market.
It also suggests that it is only a matter of time before activity picks up for RMV again as well.
#3. Long-term technology play
Last, but far from the least, the biggest reason I like RMV is because it sits at the intersection of property and technology sectors.
Over time, marketplace activity will take place increasingly over apps. The corona-crisis has converted many of us into more committed online shoppers and I think the trend will only grow, including in real estate.
As a leading real estate e-marketplace, RMV is poised to benefit from this.
Risks to RMV
But as in the case of all other stock market investments, there are risks to the RMV share too. The first is about its performance.
It is true that the property market, especially in the first half of 2020, was an uncertain one. But not all real estate companies have received as bad a revenue blow as RMV.
For instance, the FTSE 100 housebuilder Persimmon has seen an only 8% drop in its 2020 revenues. By comparison, revenues for RMV are down by more than three times that amount.
To that extent, its bounce back in 2021 may be slower too.
Moreover, housing market growth itself can get dented from July onwards, when the stamp duty holiday ends. If the economy also turns out to be weak, RMV’s performance could stay muted.
Over the long term, however, I remain a believer in its story. For that reason, I have already bought the stock.