Housebuilder Taylor Wimpey’s (LSE: TW) share price decline of 10% in August shows that investors have continued to take a cautious stance on the housebuilding company ahead of an uncertain period for the UK economy.
Of course, the stock is likely to have been dragged down by weak investor sentiment towards the wider equity market. The FTSE 100 declined by 5% in August, with fears increasing around the prospect of a ramp-up in the trade war between the US and China.
Improving performance While Taylor Wimpey’s share price may have declined in August, its half-year results release on 31 July showed that it is making strong progress against its strategy. Demand for its new homes has been robust in recent months, with government policies such as Help to Buy and low interest rates making the property market more affordable for first-time buyers.
Furthermore, with the company investing in improving the quality of its homes, it could offer an increasingly sustainable growth outlook. It may avoid some of the issues that rival housebuilders have had with customer complaints that ultimately lead to a slowdown in completions in many cases.
Possible risks As mentioned, an uncertain outlook for the UK from an economic and political perspective may have weighed on the Taylor Wimpey (LON:TW) share price in August. Investors may continue to adopt a risk-averse stance towards UK-focused companies that could be negatively impacted by political and economic change in the short run.
Since the housebuilding sector has been a major beneficiary of government demand-side policies such as Help to Buy, changes to the government’s strategy following a possible election may have a significant impact on the wider industry. This may lead to the company experiencing more challenging trading conditions than it has in the past, which could suppress its share price growth prospects.
Potential catalysts However, with the stock’s recent decline meaning that it trades on a price-to-earnings (P/E) ratio of just 7, it appears to offer a wide margin of safety. Moreover, it is expected to record a rise in net profit of 4% in the current year, which suggests that its near-term financial outlook could continue to be positive despite political and economic risks being present.
With buy-to-let becoming increasingly unattractive from an investment perspective due to tax changes such as a 3% stamp duty surcharge, housebuilders such as Taylor Wimpey could prove to be an effective means for investors to gain exposure to the property market.
With the stock now expected to deliver an income return of over 11% in the current financial year following its share price decline in August, it could offer an impressive dividend investing outlook. For long-term investors who seek to buy sound businesses while they trade on low valuations, Taylor Wimpey may prove to be a worthwhile investment opportunity.
Peter Stephens owns shares of Taylor Wimpey. The Motley Fool UK has no position in any of the shares mentioned. 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.
Motley Fool UK 2019