Should You Investigate The Berkeley Group Holdings plc (LON:BKG) At UK£42.80?

While The Berkeley Group Holdings plc (LON:BKG) might not have the largest market cap around , it saw a significant share price rise of 20% in the past couple of months on the LSE. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. 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.

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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. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Berkeley Group Holdings’s ratio of 11.1x is trading slightly below its industry peers’ ratio of 12.69x, which means if you buy Berkeley Group Holdings today, you’d be paying a decent price for it. And if you believe Berkeley Group Holdings 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. 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.

Check out our latest analysis for Berkeley Group Holdings

What does the future of Berkeley Group Holdings look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 -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? BKG seems priced close to industry peers right now, 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 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 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 1 warning sign for Berkeley Group Holdings you should know about.

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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.