FTSE 250 house builder Bellway (LSE: BWY) released a robust trading update today, underlining for me a long-held faith in its credentials. This is despite the fact that its share price has run up a lot over time.
It is up 78% since last year’s stock market crash. The recovery was fairly swift from there, but it managed to add another 37% to its share price in the last year as well. I think there is more in store for it.
Positives for the Bellway share
It is still 20% below its pre-pandemic highs. Considering that still loss-making stocks, like low cost airline Wizz Air for instance, have zoomed ahead to multi-year highs, this looks like a possible undervaluation to me.
This is especially so considering Bellway’s latest trading update. For the full year ending 31 July 2021, the company reported a huge 41% increase in revenues from the year before. It is of course true that the past year is not entirely reflective of normal conditions.
At the same time, considering that Bellway’s financial year runs from August to July, at least six months of the year were unaffected by Covid-19, if not more. Moreover, its revenues are at touching distance from their 2019 levels now.
Its forward sales position is strong too. It has an order book of 7,082 homes totalling £2,022m, which is way ahead of the numbers for both 2020 and 2019. In other words, results for the next year could go back to pre-Covid highs, if not higher.
The economy and the housing market
The company also mentions the role of vaccinations in the UK economy’s future performance. As of today, 75% of UK’s adults are now double-jabbed, which offers protection against the Delta variant that has otherwise caused havoc. And that is indeed a positive for the economy, that has so far seen muted improvements.
So far as the economy still needs some support, though, I reckon that mortgage rates can still stay relatively low. This in turn can continue to push up demand for houses, which is a positive for Bellway.
There could be some hit though, from the rollback of the stamp duty holiday. Already, some cooling off is visible in house prices. And with the UK’s economy having not exactly taken off so far, this is one aspect I am watching with mild nervousness.
Would I buy the FTSE 250 stock?
Overall, however, I like the Bellway stock. The company displayed financial growth in the pre-Covid years and it looks all set to bounce back from the pandemic as well. I think the fact that the company’s share price is still trading below its pre-crash price goes in its favour.
With £1,000, I can buy over 25 shares in the company, which makes it a somewhat pricey stock in absolute terms, but not so much in relative terms. It has a price-to-earnings ratio of 22 times. I maintain that it is a buy for me.
