Edmund Shing released a video today, expressing the opinion that UK house prices, stocks and bonds are too expensive (http://is.gd/QQ74Fc). You can also find him on Stockopedia (http://is.gd/BZZ649) and his website (https://twitter.com/TheIdleInvestor). I’ve found some of his calls to be pretty impressive, so he’s worth keeping tabs on.
I have been avoiding housebuilders myself, being suspicious of their valuations. There are some high-profile private investors who are bullish on this sector who have, so far, been proven right, whilst I have been proven wrong. The housing sector has climbed a wall of worry.
I thought it would be interesting to run over some numbers, which show my concerns.
Here’s some stats over the last decade that I grabbed off of Sharelock Holmes for a random selection of builders.
BWY (Bellway) has a PE of 10.8, and a share price of 2363p. The yield is 3.1%. The PE looks modest. However, its current operating margins are 17.2%. This figure was only exceeded in only 3 of 9 years. Its PBV is 2.12. This figure has always been lower in the last decade. The ROE is 14.0%. Again, this return was only exceeded in 3 of 9 years.
TW. (Taylor Wimpey) has operating margins of 17.9% – the highest in a decade. Likewise for its PBV of 2.38.
PSN (Persimmon): operating margins have only been exceeded in 3 of 9 years. PBV is at a decade high. PSN has always enjoyed high PBV values, though, so this statistic is of marginal value.
BWY is up 241% over 5 years, compared to the Footsie of 34%. TW and PSN are up 443% 381% respectively over the same period.
Valuations do look toppy, but for all I know, the trend can continue in the short to medium term.