Image source: Getty Images
He FTSE 100 Index It can be a great place to find high value stocks. I already own Barratt Developments (LSE:BDEV) and its amazing all-round value for money means now could be a good time to buy even more shares.
This is why.
Improving the market
Housebuilders have had a tough time of late as higher interest rates have sapped demand for housing. City analysts expect this to have cut Barratt's profits by 60% in the last financial year (to June 2024).
However, number crunchers expect annual profits to rise sharply from here and foresee a market recovery as the Bank of England (likely) begins to cut interest rates in the coming months.
Data updated today (July 15) of right movement It underlines how profits could potentially recover at companies such as Barratt. It showed average selling prices fell 0.4% year-on-year to £373,493 this month.
But, more encouragingly, a 15% increase in the number of sales agreed was also revealed, representing a significant increase from the 6% increase reported a month ago.
It looks cheap
However, the recent general recovery in the housing market and, by extension, builders' profits are at risk. Persistent inflation could lead the Bank of England to keep interest rates fixed around current levels, limiting future improvement.
Higher-than-normal levels of cost inflation could also continue to be a problem.
However, I think these factors may be reflected in Barratt's low share price. City analysts expect this year's profits to rise by 23% in the 2025 financial year. This leaves the FTSE 100 company trading on a forward growth price-to-earnings (PEG) ratio of 0.7.
A reminder: any reading below one indicates that a stock is undervalued.
Overreaction?
Barratt shares plunged following the company's trading update last week. Investors were spooked by the sharp fall in completed deals in the 12 months to June, and predictions that they will fall to between 13,000 and 13,500 this year, from 14,004 in the previous period.
However, I think the negative market reception to the figures could be an overreaction. Last year, housing completions exceeded Barratt's estimates, which was boosted by the steady rise in net private bookings from previous lows.
These reached 0.58 per active point of sale per week, which marks an improvement (albeit fractional) compared to the 0.55 of fiscal year 2023.
Great opportunity
While the short-term outlook remains uncertain, I am convinced that owning Barratt shares remains an attractive option for long-term investors to consider.
Planning red tape has long been a problem for housebuilders. But Labour's plans to relax restrictions – an idea the new government says will allow 300,000 new homes to be built a year by 2029 – could make it easier for builders to boost profits from now on.
Barratt's planned acquisition of FTSE 250 Index-list Redrow It will also help the company to better take advantage of this excellent growth opportunity, supported by the increase in the UK population and, consequently, by the increase in housing needs. The enlarged group has the potential to build 22,000 new homes per year in the medium term, says the FTSE firm.
While not without risks, I think Barratt could be one of the most attractive value stocks in the index to consider right now.
