Are Taylor Wimpey shares a good investment?

Taylor Wimpey announced operating profits will halve, but is this secretly the time for long-term investors to buy shares?

Taylor Wimpey (LSE:TW) shares have been on a volatile path after the company announced it expects annual operating profits to halve in the current year amid wider stress in the property market. The housebuilder has committed to accelerating the construction of new homes to offset current challenges.

However, even with higher volumes, the impact of inflation and the subsequent decline in house prices has and will likely continue to take its toll on profits.

Key points

• The home builder plans to build between 10,000 and 10,500 homes this year.
• Operating profit is expected to halve this fiscal year.
• Taylor Wimpey is focused on building homes to the Future Homes Standard (FHS) 2025.

What does Taylor Wimpey do?

Taylor Wimpey is one of the UK’s largest residential developers. It’s a FTSE 100 company that was established in 2007 after the successful merger of two rival companies, Taylor Woodrow and George Wimpey.

The company builds and sells more than 10,000 homes each year, with the support of its more than 5,000 employees. Through their work, they make a positive contribution to the communities in which they operate. Under the leadership of CEO Jennifer Daly, Taylor Wimpey successfully trades on the London Stock Exchange.

What do the finances look like?

As mentioned above, 2023 has been a difficult year for the business in terms of profits. The continued decline in the property market and high operating costs have combined to put enormous pressure on the construction sector.

Looking at current figures, the company announced that this year its profits will be reduced by half. On the other hand, there has been no reduction in the company’s construction projects. They plan to build between 10,000 and 10,500 homes this year.

In the midst of all this crisis, the company remains firm and committed to returning to shareholders in the form of dividends. Recently, the construction company announced a cash dividend of 4.79 pence.

The bullish case for the Taylor Wimpey share price

Taylor Wimpey is a housebuilder. Demand for homes in the UK remains very high and Taylor Wimpey will continue to help build them. I believe this is one of the company’s greatest strengths and growth factors. Through all the tough times, the company will continue to run and run.

Another driver of growth is the commitment to protect their homes and achieve the Future Homes Standard (FHS) 2025.¹. By these standards, these homes are energy efficient in terms of fuel and energy conservation.

The Taylor Wimpey team is busy testing prototypes that will provide significant insights into addressing key industry challenges as the first research concept to test low-carbon technologies through multi-spec housing prototypes on a real development site.

The Bearish Case for Taylor Wimpey Share Price

One of the biggest risks for the company is that it becomes trapped in its own restriction of operating only in the UK market. The European crisis and the economic crisis, specifically in the real estate sector, have been affecting the company’s finances. And I think this is likely to continue in the future.

The real estate market is notoriously cyclical. And while the company has weathered similar economic storms in the past, in some cases it has taken considerable time to recover.

Taylor Wimpey Share Price Prediction

Most research analysts have maintained a stance on Taylor Wimpey stock. They have forecast a share price forecast range of 115p to 157p. Compared to the current share price of around 122p, that suggests the stock is currently trading at the lower end of expectations.

Should you buy Taylor Wimpey shares today?

Since the beginning of 2023, Taylor Wimpey shares have followed a mixed bullish and bearish trend. However, it is nowhere near its peak price of 175p in 2021.

While the stock has depreciated a lot, what I’m looking at is its future. Personally, I think the recovery of the British property market could take several years. And while the company appears well positioned to capitalize on this trend, investors will need a lot of patience. This is especially true if the British economy suddenly takes a turn for the worse.

Article sources

1. Taylor Wimpey Testing our houses of the future

Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. The opinions expressed about the companies and assets mentioned in this article are those of the author and therefore may differ from the opinions of The Money Cog Premium Services analysts.