Why I'd shun this FTSE 100 stock and buy this smaller growth-and-income stock instead

About a third of FTSE 100 companies are forecast to post a decline in earnings in their current financial years and a further quarter are forecast to report growth of less than 6%. As such, higher-growth stocks are relatively thin on the ground at the present time and are much prized by investors. I believe the share prices of many of these have now been bid up too high and that there's something of a shortage of growth at a reasonable price in the top index.

Today, I'm discussing one Footsie favourite, whose valuation I see as unappealing, and a smaller company I see as offering growth at a reasonable price, as well as a 4% dividend yield.

Rightmove wrong price

The UK's number one property portal and FTSE 100 company Rightmove (LSE: RMV) is a terrific business, in my view. Itms dominance, profit margins and return on capital employed rightly merit a premium valuation. And it's certainly delivered in spades for past investors: an average annual total return of more than 35% over the last 10 years compared with less than 8% for the Footsie.

At a current share price of around 5,150p, Rightmove's market capitalisation is £4.7bn. As a UK-focused business it's grown into a very large fish in a relatively small pond. Earnings growth is on a decelerating trajectory: 24% (2014), 21% (2015), 18% (2016) and 14% (2017). Analysts are forecasting a further decline in growth to 9% this year. I believe it may be able to maintain this growth rate in future years -- or at least until the next serious economic downturn.

The current-year forecast price-to-earnings (P/E) ratio is 29. At the forecast earnings growth rate of 9%, the price-to-earnings growth (PEG) ratio is 3.2. This is way above the PEG 'fair value' marker of 1, so I believe the P/E is currently far too high for the level of earnings growth on offer. And with a 1.3% dividend yield also being relatively meagre, I rate the stock a 'sell'.

Sound value credentials

I'm far more attracted to the value proposition over at specialist staffing business SThree (LSE: STHR) which released its half-year results today. The shares are trading a tad up at 350p, valuing this FTSE SmallCap firm at £455m.

The group specialises in the science, technology, engineering and mathematics sectors and I like its geographical diversification. Over 80% of its gross profit comes from outside the UK and Ireland. Today it reported an 11% year-on-year increase in gross profit across the group for the six months to 31 May, with a strong performance in Continental Europe (up 18%) and the USA (up 9%) more than offsetting a challenging UK and Ireland (down 2%).

Management said the positive group trading trend has continued since the period end. City analysts are forecasting 7% earnings growth for the current year ending 30 November, accelerating to 16% for fiscal 2019. This gives a P/E of 12.7, falling to 10.9 and a PEG of 1.8, falling to 0.7 -- so moving to the value side of the PEG fair value marker of 1. With SThree also offering a forecast dividend yield of 4% this year, rising to 4.25% next year, I believe the company has sound value credentials and I rate the stock a 'buy'.

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G A Chester has no position in any of the shares 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.

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