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As a sector, UK homebuilders have endured a rough couple of years thanks to interest rates staying higher for longer and weakness in the UK economy. Within the sector, I spotted one of the FTSE 250 firms that took a large hit in 2024 and still hasn’t recovered. Yet, based on my outlook for the company, I think it could be a rare opportunity to buy on the cheap right now.
A tough period
I’m talking about Vistry (LSE:VTY). The share price might be up 30% over the past year, but this is slightly misleading as to where the stock is over the long term. It’s down over 50% from its early September 2024 price.
In Q4 2024 and into 2025, the company struggled amid multiple profit warnings, cost overruns, and deteriorating earnings expectations. One of the largest disappointments came in late 2024 when the company disclosed that it had understated build costs by around 10% on several developments in its South Division. Given this was expected to reduce profits by approximately £115m, the sizeable hit knocked roughly £1bn off its market value. It caused the stock to fall by 25% lower in just a few days.
It hasn’t been able to recover since then, as cost issues were revealed to be larger than initially thought. As this filtered down to lower profits in 2024 and 2025, investors logically reduced their expectations for the company’s value, causing the stock to underperform.
The turning point
I think the stock offers a rare buying opportunity now. To begin with, consider the valuation. The price-to-book ratio is currently 0.65. Apart from at the start of last year, when it was at 0.58, this is the lowest the ratio has been in the last decade. This could indicate the stock is undervalued.
Further, I feel we’re at peak pessimism about homebuilders. I struggle to see how things can get much worse. On the other hand, I expect several interest rate cuts this year. If we see three more cuts this year, taking the base rate down to 3%, it would be the lowest level since 2022. This would likely lead to higher mortgage demand given the more affordable prices on offer.
Finally, the UK Government’s multi-billion-pound Social and Affordable Homes Programme is expected to be pushed hard this year. It aims to expand capacity and deliver more partnered housing deals. As a result, it means Vistry is well-positioned to benefit.
The bottom line
A risk is that we could see further delays, cost overruns or warranty costs on past homes, which can negatively affect profitability. But given the attractiveness of the stock for a variety of reasons, I think it’s a company for investors to consider.
