Shares in London estate agency group Foxtons (LSE: FOXT) have risen by 68% since I last wrote about this stock. Foxtons’ share price has now doubled from last year’s lows. Is there still further to go?
Foxtons has issued an upbeat trading statement today, so I’ve been taking a fresh look to see whether I want to buy this stock right now.
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Sales pipeline is growing.
Foxtons’ founder and chief executive Nic Budden says that sales revenue during the first quarter of 2020 was 49% ahead of both 2020 and 2019. What’s more, Budden says the company’s “sales commission pipeline has continued to grow.” This figure is now said to have risen by 17% since the start of this year.
As a result of this strong trading, the company expects adjusted operating profit for the first half of 2021 to be ahead of the same period in last two years. That sounds good. But it turns out that Foxtons reported a loss during the first half of both 2019 and 2020.
In fact, the company has reported an after-tax loss in each year since 2018. It seems what today’s announcement is really saying is that Foxtons hopes to return to profitability this year. That’s not new information — broker forecasts for 2021 already showed the company returning to profit this year.
A real turnaround?
Given that Foxtons has lost money for the last three years, it’s clear the company already had problems before the pandemic. What happened is the business performed very well in the booming London housing market up until 2016. When the market in the capital slowed from 2016 onwards, Foxtons’ revenue fell sharply as fewer homes were sold.
Foxtons has since scaled up its letting operations in order to build a more balanced business. However, both lettings and sales revenue fell as a result of events in 2020.
Over the last year, the housing market has been lifted by the stamp duty holiday. This is due to end on 30 June. It’s not yet clear how this will affect sales, but it seems Foxtons is still seeing strong demand for new listings at the moment.
Foxtons’ share price: what I’m doing
Can the Foxtons share price keep rising? I’m not convinced. The latest consensus forecasts suggest the company will report adjusted earnings of 1.2p per share in 2021, rising to 2.1p per share in 2022. These forecasts put value the company at 50 times 2021 forecast earnings, falling to 29 times earnings in 2022.
It’s possible that Foxtons will perform better than expected over the next 18 months. But, on balance, I think the current share price already reflects a strong outlook. I don’t see any obvious value here, especially given Foxtons’ mixed record in recent years.
This isn’t a stock I’m planning to buy at the moment. But, as always, I’ll keep monitoring the company’s performance and may change my view as events unfold.