The FTSE 100 index has delivered a strong recovery since the March 2020 market crash. It has risen by 36% as investors have looked ahead to an improving economic outlook backed by fiscal and monetary- policy stimulus.
However, some of the index’s constituents have gained far more than the FTSE 100 over the same period. For example, the share prices of WPP (LON: WPP) and Rightmove (LON: RMV) have risen by 100% and 60%, respectively, since their 2020 lows.
With sound strategies, improving outlooks and strong competitive positions, they could offer further capital growth and FTSE 100 outperformance over the long run.
WPP’s share-price surge has been catalysed by the prospect of a global economic recovery. The communications company’s first-half results showed a return to pre-Covid performance, with revenue increasing by 16.1% on a like-for-like basis.
Its focus on online segments has been beneficial, since its clients invested heavily in digital media and e-commerce. This trend may persist as working and consumer habits are likely to have been altered to at least some degree, by lockdown measures.
The company’s ongoing, acquisition-led strategy and investment in broadening its offering could provide further scope for sales and profit growth. Indeed, it is expected to deliver a 15% annualised rise in earnings over the next two financial years as the world economy grows by an expected 6% in 2021 and 4.4% in 2022.
WPP’s forward price-earnings (P/E) ratio of 15.5 suggests it continues to offer good value for money. Risks such as rising inflation prompting higher interest rates and a return to containment measures caused by a resurgent Covid-19 this winter could hold its shares back in the short run.
However, its strategy, valuation and a likely ongoing, global, economic resurgence in the coming years suggest it continues to offer growth potential.
Rightmove’s share price has also been boosted by improving trading conditions in recent months. The online property portal reported its highest-ever average revenue per advertiser in the first half of the year as the UK’s housing market experienced a boom. This enabled it to report sales and net profit that were 4% and 8% higher, respectively, than in the same period of 2019.
Clearly, the stamp-duty holiday’s end could prompt reduced activity in the housing market. Some investors may feel that this threat, as well as the ongoing risks associated with Covid-19, mean the stock’s forward P/E ratio of 32 is relatively unappealing at a time when other FTSE 100 shares offer significantly lower ratings.
However, Rightmove’s 90% market share, innovative strategy that includes the launch of upselling products and forecast 9% annual rise in earnings in the next two years suggest it could produce further capital growth.
Moreover, favourable market conditions brought about by ongoing, low interest rates and government support for the sector, such as through the mortgage-guarantee scheme, may continue to catalyse activity in the housing market. As such, Rightmove’s shares may offer further FTSE 100 outperformance over the long run.