Which is better value, the Persimmon or Barratt share price?

The Persimmon (LSE: PSN) share price has slumped badly in the last couple of years — you don’t need me to tell you that. Barratt Developments (LSE: BDEV) is down too, though not as hard.

But these are stocks in a sector that’s sure to enjoy strong long-term demand in the years ahead, aren’t they?

Value comparison

The businesses of these two are close to identical, and I don’t see any specific problems with either. So how might we decide which is better to buy right now?

I’ll start by comparing their financial valuations. Here’s a look at a few key measures from the two firms:

Measure/Company
Persimmon
Barratt

Recent share price
1,096p
424p

1-year change
-38%
-10%

5-year change
-56%
-20%

Price-to-earnings ratio
12.6
6.8

Dividend yield
5.7%
8.6%

Market cap
£3.5bn
£4.1bn

(P/E ratios and dividend yields are forecasts)

Those are some hefty share price falls. But we have just had the biggest average house price drop since 2009.

Mortgage pain is hurting. And inflation had pushed up prices for building materials. That means margins are under pressure, and builders’ profits look set to suffer.

Gloomy headlines

But when I read the headlines, I see people wailing about house prices set to fall 25% in the next five years due to high interest rates. Or 35%, or whatever.

Do we think inflation and interest rates will stay this high for five years? I don’t.

Only this week, Ocado told us it thinks the UK is “definitely over the worst” of food price inflation. And food makes up a big chunk of the total.

I think the pain is likely to be fairly short-term. And the long-term demand for homes just can’t go away, can it?

I just don’t think the share valuations of these two fairly represent the long-term profits they’re likely to make. Like any time a sector is down, I’d say share prices have dropped too far.

Stock valuations

On the figures above, the valuations of the two look quite different.

The Persimmon P/E of 12.8 might seem a bit high, but forecasts show it dropping to nine by 2025. In the other direction, Barratt’s low P/E of 6.8 looks set to rise to 10.

There’s a difference in dividend yields too. But Persimmon’s has already been cut. And the City expects the Barratt yield to fall next year, to 4.8%.

On these measures, based on the outlook for the next three years, both stocks look similarly valued.

Which is best?

Forecasts are extra risky in times like these. And yes, mortgage costs could hurt the market more over the next two or three years. So I wouldn’t be surprised to see share prices fall further before things improve.

But you know, when house prices fall, land prices should too. So in the long term, I expect margins to recover, and earnings and dividends to keep going.

I bought Persimmon shares, but I think I’d be just as happy with Barratt Developments. Or Taylor Wimpey, or…

The post Which is better value, the Persimmon or Barratt share price? appeared first on The Motley Fool UK.

Should you buy Barratt Developments shares today?

Before you decide, please take a moment to review this first.

Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.

It’s called ‘5 Stocks for Trying to Build Wealth After 50’.

And it’s yours, free.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.

That’s why now could be an ideal time to secure this valuable investment research.

Mark’s ‘Foolish’ analysts have scoured the markets low and high.

This special report reveals 5 of his favourite long-term ‘Buys’.

Please, don’t make any big decisions before seeing them.

Claim your free copy now

setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()

More reading

2 FTSE 100 stocks that look tempting as they fall!
3 stocks to buy before it’s too late!
Is Barratt Developments still my top UK stock for 2023?
My top 3 stocks to buy before August
How many Persimmon shares would I need to give up work and live on the passive income?

Alan Oscroft has positions in Persimmon Plc. The Motley Fool UK has recommended Ocado Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Persimmon (LSE: PSN) share price has slumped badly in the last couple of years — you don’t need me to tell you that. Barratt Developments (LSE: BDEV) is down too, though not as hard.

But these are stocks in a sector that’s sure to enjoy strong long-term demand in the years ahead, aren’t they?

Value comparison

The businesses of these two are close to identical, and I don’t see any specific problems with either. So how might we decide which is better to buy right now?

I’ll start by comparing their financial valuations. Here’s a look at a few key measures from the two firms:

Measure/Company
Persimmon
Barratt

Recent share price
1,096p
424p

1-year change
-38%
-10%

5-year change
-56%
-20%

Price-to-earnings ratio
12.6
6.8

Dividend yield
5.7%
8.6%

Market cap
£3.5bn
£4.1bn

(P/E ratios and dividend yields are forecasts)

Those are some hefty share price falls. But we have just had the biggest average house price drop since 2009.

Mortgage pain is hurting. And inflation had pushed up prices for building materials. That means margins are under pressure, and builders’ profits look set to suffer.

Gloomy headlines

But when I read the headlines, I see people wailing about house prices set to fall 25% in the next five years due to high interest rates. Or 35%, or whatever.

Do we think inflation and interest rates will stay this high for five years? I don’t.

Only this week, Ocado told us it thinks the UK is “definitely over the worst” of food price inflation. And food makes up a big chunk of the total.

I think the pain is likely to be fairly short-term. And the long-term demand for homes just can’t go away, can it?

I just don’t think the share valuations of these two fairly represent the long-term profits they’re likely to make. Like any time a sector is down, I’d say share prices have dropped too far.

Stock valuations

On the figures above, the valuations of the two look quite different.

The Persimmon P/E of 12.8 might seem a bit high, but forecasts show it dropping to nine by 2025. In the other direction, Barratt’s low P/E of 6.8 looks set to rise to 10.

There’s a difference in dividend yields too. But Persimmon’s has already been cut. And the City expects the Barratt yield to fall next year, to 4.8%.

On these measures, based on the outlook for the next three years, both stocks look similarly valued.

Which is best?

Forecasts are extra risky in times like these. And yes, mortgage costs could hurt the market more over the next two or three years. So I wouldn’t be surprised to see share prices fall further before things improve.

But you know, when house prices fall, land prices should too. So in the long term, I expect margins to recover, and earnings and dividends to keep going.

I bought Persimmon shares, but I think I’d be just as happy with Barratt Developments. Or Taylor Wimpey, or…

The post Which is better value, the Persimmon or Barratt share price? appeared first on The Motley Fool UK.

Should you buy Barratt Developments shares today?

Before you decide, please take a moment to review this first.

Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.

It’s called ‘5 Stocks for Trying to Build Wealth After 50’.

And it’s yours, free.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.

That’s why now could be an ideal time to secure this valuable investment research.

Mark’s ‘Foolish’ analysts have scoured the markets low and high.

This special report reveals 5 of his favourite long-term ‘Buys’.

Please, don’t make any big decisions before seeing them.

Claim your free copy now

setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()

More reading

2 FTSE 100 stocks that look tempting as they fall!
3 stocks to buy before it’s too late!
Is Barratt Developments still my top UK stock for 2023?
My top 3 stocks to buy before August
How many Persimmon shares would I need to give up work and live on the passive income?

Alan Oscroft has positions in Persimmon Plc. The Motley Fool UK has recommended Ocado Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

 

​ 

Leave a Reply

Your email address will not be published. Required fields are marked *

Search this website