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Is this the FTSE 100’s top tech stock?

Rupert Hargreaves
Financial technology concept. Stock market crash.

The world is currently undergoing a technology revolution. The coronavirus crisis has dramatically increased our reliance on technology, and some companies are reaping big rewards from the transition. Unfortunately for UK investors, many of the world’s largest tech businesses are located in the United States. And they’re listed on US stock exchanges. There are only a handful of tech groups in the FTSE 100, all of which are small compared to America’s tech leaders. 

However, that does not mean that UK-based tech firms are not worth buying. There’s at least one FTSE 100 firm that stands out as being one of the most successful tech businesses in the world.

FTSE 100 tech leader 

Shares in Rightmove (LSE: RMV) have come under pressure this year due to concerns about the company’s growth prospects. Shares in the FTSE 100 tech giant are off 14% year-to-date. Compared to many other tech stocks, this performance looks pretty bad. 

Nevertheless, for investors with a long-term outlook, this may be a great opportunity. After recent declines, the stock appears to offer a substantial margin of safety. So it could make sense to buy a share of this growth champion while it is trading at a low level. 

Share in the FTSE 100 business have come under pressure this year for several reasons. Rightmove relies on fees from estate agents, which pay to list properties on its site. This is a highly lucrative business model, but it has its drawbacks. For example, Rightmove’s success is tied to the growth of the property market. 

When the government put the property market into cold storage earlier this year, as part of the country-wide economic lockdown, Rightmove’s bottom line suffered. And it seems to be struggling to get agents back to the platform. The company recently announced tens of millions of pounds of incentives to entice agents back. 

It may take some time for activity and the property market to return to normal levels. Still, as the largest property website in the UK, Rightmove’s bottom line should recover rapidly when it does. 

Profitable business

Like many tech companies, this FTSE 100 giant is highly profitable. Last year the group reported an operating profit margin of 74%! That’s 10 times higher than the stock market average. These fat profit margins have helped the organisation build a large cash cushion.

At the end of 2019, the company had net cash in the bank of £24m. This implies that the firm has more than enough money to see it through the crisis and sacrifice some profit via marketing costs to get customers back. In recent years, the FTSE 100 tech stock has also been spending money to repurchase shares, and it has had a positive impact on the share price. 

Therefore, considering Rightmove’s underwhelming stock price performance since the beginning of 2020, now could be a great time to snap up a share of this highly profitable, leading tech business at an attractive price as part of a diversified portfolio. 

The post Is this the FTSE 100’s top tech stock? appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Rightmove. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020