Today I am outlining why Barratt Developments (LSE: BDEV) could be considered a terrific stock for growth hunters.
Booming housing demand boosts earnings outlook
Without doubt, Barratt is one of the best construction stocks currently on the market, as an environment of low rates boosts homebuying activity and chronic property shortfalls drive prices through the roof.
The company saw revenue surge 21.1% higher to 3.16bn during the year concluding June 2014, Barratt reported last month, and which prompted pre-tax profit to more than double to 390.6m. And Barratt also boasts solid order book of around 1.5bn up almost a quarter from the previous year as well as a consented landbank of around 4.7 years.
Although chatter concerning a potential housing bubble continue to do the rounds, these fears are nothing new and house prices continue their relentless march higher, in my opinion. Latest Rightmove HPI data this week showed asking prices tick 0.9% higher month-on-month in September, an unseasonal rise which indicates the pent-up demand in the housing market indeed, there is 10% less property available now than 12 months ago, the survey showed.
Against this backcloth, the housebuilder expects to open 180 new sites in the current year versus 134 2014. And with a strong bias towards the more expensive London and South-East of England, Barratt is well placed to enjoy further strong revenue growth.
A stunning value pick
After slipping into the loss column at the turn of the decade, Barratt has convincingly got earnings expansion back on track and boasts a compound annual growth rate of 84.4% during the past four years.
The Citys number crunchers expect the housebuilding goliath to return to more realistic levels in the medium term, however. Still, broker Citi for one expects the firm to print meaty earnings growth of 37% and 17% in 2015 and 2016 correspondingly, to 42.6p and 49.9p per share.
These figures leave Barratt dealing on mega-low P/E multiples of 9 for 2015 and 7.7 for 2016. Not only do these figures smash a forward average of 12.2 for the entire household goods and home construction sector, but these numbers also fall within the widely-regarded bargain terrain under 10 times prospective earnings.
And Barratts price to earnings to growth (PEG) numbers for these years rubber stamp the companys terrific cheapness relative to its growth potential readouts of 0.2 and 0.5 for 2015 and 2016 respectively fall well below the standard of 1 which signals exceptional value.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.