Taylor Wimpey (LSE:TW) shares have been on a downward track this year. But so have other housebuilders. In fact, housebuilder stocks have been on very similar trajectories despite differing fortunes.
Taylor Wimpey stock is down 28% since the beginning of the year and down 21% over the past 12 months. So, what’s behind the fall? And should I be adding Taylor Wimpey to my portfolio?
Why is Taylor Wimpey stock falling?
There are several reasons for the falling share price. But generally investors are concerned that the economic climate isn’t favourable for housebuilders.
Rising inflation is pushing up building costs while the associated cost of living crisis is squeezing Britains, making home ownership less feasible for many.
Meanwhile, higher interest rates are increasing the cost of borrowing. Investors are concerned that potential homebuyers may delay their decision to buy.
Collectively these factors appear to be having an impact on demand for housing. According to Halifax data, UK house price hit a fresh high in May, but the rate of growth slowed to 1% from April.
Moreover, housebuilders had been embroiled in an argument with the government concerning the removal of flammable panels from houses and apartment blocks around the country. Companies signed up to the government’s fire safety pledge in the Spring, which saw most housebuilders set aside even more money.
In a trading update, Taylor Wimpey said it would spend an additional £80m on fire safety work after agreeing to the government’s demands. Its total spend on remediation work is around £245m.
So, should I buy the shares?
Is Taylor Wimpey right for my portfolio? 2021 was a good year for the industry, recovering after a slow 2020. But, I think housebuilders will do even better in 2022.
Taylor Wimpey’s revenue in 2021 was £4.28bn, not far off 2019’s £4.34bn. Pre-tax profit jumped 157% to £679m, although this was still notably down on the £835m recorded in 2019.
The FTSE 100 firm has said it is confident of hitting its FY targets set out at the beginning of the year. Its total order book value stood at approximately £2.97bn on April 17, up from £2.80bn 12 months prior.
Taylor Wimpey also looks pretty cheap by some metrics. It has a price-to-earnings ratio of 7.1 and a price-to-sales ratio of just over one. That’s despite 2021 profits not hitting 2019 levels.
These metrics are comparable with other housebuilders, but I think think this represents good value. I’d expect the forward P/E to be lower. Although this depends on when the firm records its cladding crisis costs.
Taylor Wimpey, like other housebuilders, is also offering an attractive dividend. I could expect a 6.7% yield if I were to buy in at today’s price. That would help my portfolio negate inflation.
So, will I buy Taylor Wimpey stock? Yes. There might be some short-term pain if the housing market slows, but I’m confident on long-term demand for property and this company’s profitability.
