Crest Nicholson shares are up 14% over the month! Should I buy or am I too late?

Crest Nicholson shares haven’t been good to shareholders over the past 12 months. But finally, they appear to have bottomed out.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Crest Nicholson (LSE:CRST) shares have made gains over the last month. And that’s good for shareholders who have seen the value of this stock steadily decline over the past year.

The FTSE 250 stock is certainly trading at a discount, having fallen from highs of over £6 a share in 2017. It’s now trading at less than £3 a share, despite gaining 14% over the past month.

I actually already own some Crest Nicholson shares. But have I just missed a good opportunity to buy more?

Crest Nicholson performance

The housebuilder actually saw its profits decline before the pandemic. In 2019, Crest Nicholson blamed Brexit uncertainties for putting off buyers and “breeding unease“, which compounded an already sluggish London market.

The company is known for building in the south of England, and has historically achieved higher average selling prices than other housebuilders. Pressure on the London market, even before the pandemic, saw the share price plummet.

As part of a restructuring, Crest shelved the planned opening of its South East division and closed its central London office.

Pre-tax profits were £87m in 2021, still less than the £102m earned in 2019 and less than half the £207m achieved in 2017. However, it was a considerable improvement from the £13.5m loss made in 2020.

Prospects

2021 results showed that things were looking up for the business. The board spoke of a “transformed” balance sheet, with net cash at year-end totalling £252m, up from £142m at the end of 2020. Return on capital employed increased to 17.2% from 7.6%.

In January, the group said that 63% of revenue for the 2022 financial year was already covered. House prices have also been rising, which should be good for housebuilders.

Headwinds

Crest Nicholson predicted 2022 would be less volatile than previous years. However, it hasn’t been that stable.

Inflation, a cost of living crisis and higher interest rates have also weighed on developer share prices. And there are signs that demand for new homes might finally be cooling as house prices only grew 1% in May, according to Halifax data.

Crest has also had to pledge more money to remove flammable cladding from homes it developed. The firm was seemingly less exposed to these costs than other housebuilders. However, after signing the government’s fire safety pledge in the Spring, Crest Nicholson said it would set aside a further £120m.

The total cost of the cladding pledge could reach around £167m. Berenberg said it could totally wipe out the firm’s 2022 profits and would roughly have a 10% impact on equity.

So, should I buy more Crest stock?

Despite the headwinds and the cladding costs, I think Crest looks like a good stock to buy and hold. So, yes, I would add more Crest Nicholson shares to my portfolio at this price.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox owns shares in Crest Nicholson. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »