The Taylor Wimpey share price (LON:TW) has had a rough ride over the past five years, it is down nearly 50% despite property being one of the cornerstones of the UK economy. The asset is so deeply entrenched in the social psyche of the nation that buying a house is often referred to as ‘climbing the housing ladder’. Against the backdrop of a secular rise in house prices, you can see why.
Source: Morningstar
The average UK house price now stands above £290,000. This is near the record high. While prices have retraced somewhat in October, the current house price level is still far above the lows recorded just two years ago. No wonder many had put their hard-earned money in bricks-and-mortar.
The current LON:TW share price is 114.64p which is a change of -1.56 or -1.35% from the last closing price of 114.64 with 14,793,242 shares traded giving LON:TW a market capitalisation of £n/a. The most recent daily high has been 115.9 and daily low 113.75. The LON:TW share price 52 week high has been 145.15 and the 52 week low 80.64. Based on the most recent LON:TW share price opening of 114.64, the current LON:TW EPS (earnings per share) are 0.18 and the PE (price earnings ratio) is 6.37.
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Is Taylor Wimpey (LON:TW) a good investment in the long term?
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.
Property is cyclical. Good and bad times interchange like clockwork. When a real estate boom is underway, nothing is more lucrative than buying and selling properties. A telling example comes from one couple in Kent who managed to buy 707 houses just before the GFC. After the crisis, the ex-CEO of Persimmon bagged a £100 million bonus in 2018. And Taylor Wimpey’s own share price soared from 5p in 2008 to 225p just before the pandemic. That’s a ’45-bagger.’
In other words, outsized rewards are to be found in the property market if you get the timing right.
The best time to buy housebuilder shares is when the economic conditions are very tough. When defaults are surging; unemployment near double digits; and housebuilders struggle to offload their newly build properties. That’s the time to strike.
Are we there yet? I don’t think so. But even if we’re not at that nadir, we are certainly heading there. Patience is the key.
‘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.
Taylor Wimpey’s share price is in a poor shape this year because of several reasons:
- A persistent rise in borrowing cost – eg, mortgage costs rising at an accelerating rate
- A spike in Inflation – which erodes the purchasing power of buyers
- Economic uncertainty – arising from the war in Ukraine
- Surging energy cost – creating a ‘cost-of-living’ crisis
Against this backdrop, it is not surprising to see house prices fall back. In today’s trading update, even the firm has admitted that sales and conversion rates are up, while the cancellation rate is down (“cancellation rate for the second half of the year to date was 24% (2021: 14%), with a year to date cancellation rate of 18% (2021:14%)).”
In these challenging economic conditions, analysts would be brave to put a positive rating on Taylor’s shares. According to the Financial Times, a good number of brokers have de-rated Taylor Wimpey from ‘Outperform’ (14 to 7). This exerts downward pressure on the stock.
However, if we look at their price predictions, many are expecting a modest rise from the current price level. Perhaps the City assumes that Taylor’s multi-quarter decline is far enough. A rebound from oversold conditions is a distinct possibility.
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 |
To buy shares in Taylor Wimpey (LON:TW), you need a trading or share dealing account. Follow these three steps if you want to buy shares in Taylor Wimpey:
- Decide if you want to buy Taylor Wimpey shares in the short-term or invest in the long-term
- Compare share dealing and trading fees in our comparison tables
- Choose which broker is right for you and open an account
Buying one LON:TW share costs 114.64p. However, as well as the 114.64p cost of buying the shares you will also have to pay stamp duty, dealing and custody account fees for holding your shares with a broker. You also have to consider the difference between the bid price (the price at which you sell shares) and the offer price (the price at which you buy shares). These fees vary depending on what sort of account you open, and with what broker. You can compare the different costs associated with the different types of trading and investing accounts in our comparison tables below.
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