Is Now The Time To Look At Buying The Berkeley Group Holdings plc (LON:BKG)?

While The Berkeley Group Holdings plc (LON:BKG) might not have the largest market cap around , it saw a decent share price growth of 16% on the LSE over the last few months. The company is now trading at yearly-high levels following the recent surge in its share price. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Berkeley Group Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Berkeley Group Holdings

What Is Berkeley Group Holdings Worth?

According to our 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. We’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 14.16x is currently trading slightly above its industry peers’ ratio of 14.05x, which means if you buy Berkeley Group Holdings today, you’d be paying a relatively reasonable price for it. And if you believe Berkeley Group Holdings should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. 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 kind of growth will Berkeley Group Holdings 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. 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 Berkeley Group Holdings, it is expected to deliver a negative earnings growth of -16%, 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, 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 beneficial 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. 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 gel 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. At Simply Wall St, we found 1 warning sign for Berkeley Group Holdings and we think they deserve your 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.