At UK£4.26, Is It Time To Put Barratt Developments plc (LON:BDEV) On Your Watch List?

Barratt Developments plc (LON:BDEV), is not the largest company out there, but it saw significant share price movement during recent months on the LSE, rising to highs of UK£4.72 and falling to the lows of UK£4.01. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Barratt Developments' current trading price of UK£4.26 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Barratt Developments’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Barratt Developments

What's The Opportunity In Barratt Developments?

According to my valuation model, Barratt Developments seems to be fairly priced at around 0.04% above my intrinsic value, which means if you buy Barratt Developments today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is £4.26, then there isn’t really any room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Barratt Developments’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Barratt Developments generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Barratt Developments, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What This Means For You

Are you a shareholder? BDEV seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on BDEV for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on BDEV should the price fluctuate below its true value.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Barratt Developments (of which 1 can't be ignored!) you should know about.

If you are no longer interested in Barratt Developments, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.