Unlike buying a physical property, buying a developer’s shares as an investment depends on more than just property prices. To make money, a buoyant stock market and a competent management are required too. And you will need to know which developer to buy as different firms will have different strategies. Lastly, you are buying a stock rather than a property. As we all know, the stock market is much more volatile. These are added factors to consider when analysing developers’ stock.
When looking at Taylor Wimpey’s share price, it is one of the largest developers on the London Stock Exchange worth around £3.3 billion. Its operating profit totalled around £900 million a year, and the order book stands at around 10,000 homes. Its long-term financial position appears good, but the firm has not been tested since 2008.
‘Cheap’ is the first reaction when we glance at Taylor Wimpey’s financial ratios. The housebuilder’s price-earning ratio is at a lowly 6; while its dividend yield is in excess of 9 percent. Under normal circumstances, investors would snap up stocks like this.
But we are in unchartered economic territory. Inflation is at generational high; war has come to Europe for the first time in decades. Economic uncertainty is high and rising.
As such, housebuilders could stay cheap for some time. Perhaps investors are expecting a potential cut in dividends, or its profits to decelerate.
Look at this chart from the building society Nationwide. The recent surge in mortgage cost pushed First-Time Buyers’ (a large segment of Taylor’s customer base) mortgage payments to 45% of their take-home pay. This is the highest level in 15 years – and often precedes a market crash.
Source: Nationwide
In the stock market, what is cheap often becomes cheaper. We would not be in a rush to buy the sector just yet.
Source: Financial Times
Latest Taylor Wimpey (LON:TW) analyst price targets
| Date | Broker name | New | Price at time | TW price target |
| 20-Oct-22 | Deutsche | Buy | 89.78 | 115.00 |
| 21-Sep-22 | JP Morgan Cazenove | Overweight | 106.95 | 170.00 |
| 12-Sep-22 | Berenberg Bank | Hold | 110.65 | 122.00 |
| 04-Aug-22 | JP Morgan Cazenove | Overweight | 127.85 | 180.00 |
| 04-Aug-22 | Deutsche | Buy | 127.85 | 189.00 |
| 21-Jul-22 | JP Morgan Cazenove | Overweight | 125.9 | 180 |
| 26-May-22 | JP Morgan Cazenove | Overweight | 131.15 | 180 |
| 25-May-22 | Liberum Capital | Buy | 127.15 | 165 |
| Averages | 118.41 | 162.63 |
