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£5.06 and falling to the lows of UK£4.25. 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£4.25 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

Is Barratt Developments Still Cheap?

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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Barratt Developments’s ratio of 7.6x is trading slightly below its industry peers’ ratio of 9.8x, which means if you buy Barratt Developments today, you’d be paying a decent price for it. And if you believe Barratt Developments should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Barratt Developments’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Barratt Developments?

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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Though in the case of Barratt Developments, it is expected to deliver a negative earnings growth of -14%, 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? 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 reduce the risk in your portfolio. Is your current exposure to the stock beneficial 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 advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, 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 gel 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. Be aware that Barratt Developments is showing 4 warning signs in our investment analysis and 1 of those can't be ignored...

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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.