Is It Time To Consider Buying The Berkeley Group Holdings plc (LON:BKG)?

The Berkeley Group Holdings plc (LON:BKG), might not be a large cap stock, but it saw significant share price movement during recent months on the LSE, rising to highs of UK£43.02 and falling to the lows of UK£34.47. 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 Berkeley Group Holdings' current trading price of UK£35.42 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 Berkeley Group Holdings’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 Berkeley Group Holdings

What's The Opportunity In Berkeley Group Holdings?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 Berkeley Group Holdings’s ratio of 8x is trading slightly below its industry peers’ ratio of 8.37x, which means if you buy Berkeley Group Holdings today, you’d be paying a decent price for it. And if you believe that Berkeley Group Holdings 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 Berkeley Group Holdings’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.

What does the future of Berkeley Group Holdings look like?

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. However, with a negative profit growth of -5.0% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Berkeley Group Holdings. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, BKG 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 BKG, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on BKG 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. 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 crystallize your views on BKG should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Berkeley Group Holdings at this point in time. Every company has risks, and we've spotted 2 warning signs for Berkeley Group Holdings you should know about.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.