Is Now An Opportune Moment To Examine Barratt Developments plc (LON:BDEV)?

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£4.84 and falling to the lows of UK£3.94. 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£4.33 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?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 7.83x is currently trading slightly below its industry peers’ ratio of 10.4x, which means if you buy Barratt Developments today, you’d be paying a decent price for it. And if you believe that Barratt Developments should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Although, there may be an opportunity to buy in the future. This is because Barratt Developments’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

Can we expect growth from Barratt Developments?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. However, with a negative profit growth of -12% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Barratt Developments. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, BDEV appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk 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 BDEV, 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 industry price multiples. This 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 crystallize your views on BDEV should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Barratt Developments at this point in time. When we did our research, we found 4 warning signs for Barratt Developments (1 is potentially serious!) that we believe deserve your full attention.

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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.