The Taylor Wimpey (LSE: TW.) share price has dropped to 102p. It might be one of the biggest bargains on the London Stock Exchange. These shares have fallen 45% since the pandemic, leaving many an investor wondering whether this is a rare chance to ‘buy low’.
Is this a golden opportunity to pick up cheap shares? Here’s what I think.
One metric that has been making investors wonder how undervalued the shares are is the price-to-book ratio. This is a simple comparison between the price of a share and the value of the assets the company holds.
A price-to-book ratio of less than one signals a stock may be trading at a discount. That’s because the cost of buying a share is even less than the asset (per share). For context, only eight FTSE 100 companies have a P/B this low and the (median) average is 2.63.
What’s the Taylor Wimpey P/B ratio? According to my data provider, it stands at 0.82 as I write. That suggests a near 20% discount compared to assets.
While realising that gap is not exactly cash in the bank – it’s not like shareholders can just sell the lot and pocket the difference! – it is evidence that we could be looking at a hidden gem here.
Dividends
Another reason why this is especially interesting for budding investors is the dividend policy. Taylor Wimpey operates on a fairly unique way of paying out dividends because it is connected to its assets. The company aims to pay out 7.5% of assets per year.
The knock-on effect is one of the biggest yields on the FTSE 250 and the biggest yield of any British housebuilder. Last year, the firm paid a 9.12% dividend yield.
On dividends alone, that makes Taylor Wimpey’s payout one of the highest yields across the globe. The dividend alone is currently higher than the long-term average return for UK shares (around 9% since 1900).
Struggles
Let’s not forget about the negatives here, however. This is a stock that has lost 45% of value in four years. Taylor Wimpey, along with the UK housebuilding sector in general, is struggling.
What’s the reason for the tribulations? Well, it’s kind of coming from all angles.
There’s increased supply costs for building materials, increased wage costs (from government decisions), and higher energy prices. Don’t forget costlier mortgages because of higher interest rates. A cost-of-living crisis making it harder for folks to buy houses can’t be ignored either. The company is getting squeezed from every direction.
I believe a turnaround will happen at some point. The demand for housing is only likely to increase in the years ahead, to highlight one silver lining among the clouds. That’s why this could be a stock worth considering.
