Why I'm not buying Moneysupermarket.Com Group plc despite 20% sales growth
Today's update from Moneysupermarket.com(LSE: MONY) shows that the company is on the right track. Revenue for the group increased by 20% in the final quarter of the year, which shows that its strategy is performing well. However, this doesn't necessarily mean its share price will rise over the medium term. In fact, its share price could be due for a fall, rather than a rise. Here's why.
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Upbeat performance
Sales growth of 20% in the final quarter of the year meant that revenue for the full year was 12% higher. This was boosted by a strong performance at the Insurance division, where sales rose 30% in the final quarter of the year. Alongside this, the core money business, credit cards and unsecured personal loans segments posted strong growth. Their performance was even more impressive since they've operated in a market where interest rate cuts have weakened savings and current account switching.
In addition, the TravelSupermarket.com turnaround is on track, with the division recording a rise in revenue of 21% in the final quarter of the year. The addition of MoneySavingExpert.Com also boosted sales for the year, with it contributing to an improved top line via 20% growth. As such, the overall performance of the business remains upbeat ahead of the handover to a new CEO which will take place on 10 April.
A stock to avoid
Despite its improving performance, Moneysupermarket.com lacks investment appeal. Its valuation indicates that the company should offer strong growth potential, when in fact its earnings are due to rise at only a slightly faster pace than the wider index. For example, it has a price-to-earnings (P/E) ratio of 19.2 and yet its earnings are set to be 8% higher in the current year and 9% higher in the following year. This equates to a price-to-earnings growth (PEG) ratio of 2.3, which makes the company's shares relatively overvalued.
Certainly, there's growth potential over a longer timeframe. And if the UK economy endures a difficult period then people may become more interested in finding the best deal through the products Moneysupermarket offers. However, such a high valuation is difficult to justify at a time when other stocks are expected to post higher rates of growth.
A stock to buy?
For example, Rightmove(LSE: RMV) is forecast to record a rise in its bottom line of 12% this year, followed by 13% next year. It trades on a P/E ratio of 26, but when combined with its growth rate this equates to a PEG ratio of just two. As such, it offers better value for money than Moneysupermarket.com.
Furthermore, it could be argued that Rightmove has a more favourable operating environment than its sector peer. While Zoopla is an obvious competitor, Rightmove remains the dominant player within the property listings space. Therefore, it's likely to have a wider economic moat than Moneysupermarket, which makes it a more enticing purchase at the present time.
A superior growth play
Despite this, there's another stock that could be an even better buy. In fact it's been named as A Top Growth Share From The Motley Fool.
The company offers significant long-term growth potential as well as what could prove to be a highly attractive valuation. As such, it could make a positive impact on your portfolio in 2017 and beyond.
Click here to find out all about it - doing so is completely free and comes without any obligation.
Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Moneysupermarket.com and Rightmove. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
