3 Housebuilders Set To Soar: Persimmon plc, Barratt Developments Plc and Bovis Homes Group plc

Remember those days of booming house prices? Well, they’re back, and the OECD is the latest to warn that prices could be spiraling out of control — although the think tank doesn’t reckon we’re into bubble territory yet.

What has all this done for our housebuilders? Well, it’s sent their shares skyrocketing. I added Persimmon (LSE: PSN) to the Fool’s Beginners’ Portfolio in July 2012, and here’s what the share price has done since: PSNPrice01Not all the UK’s housebuilders have seen their shares fly quite as high as that, but here’s a quick comparison of Persimmon with Barratt Developments (LSE: BDEV) and Bovis Homes (LSE: BVS), showing how far their prices have risen over the past two years and looking at current forecasts and valuation:

Company Persimmon Barratt Bovis
Share price 1,356p 378p 805p
Price growth 130% 204% 75%
EPS 2014 +34% +99% +65%
P/E 2014 12.3 13.2 11.0
Dividend 2014 5.5% 2.4% 2.7%
EPS 2015 +22% +38% +29%
P/E 2015 10.1 9.5 8.5
Dividend 2015 6.8% 3.5% 3.5%

What does that tell us?

Even though the sector has enjoyed an impressive resurgence since early 2012, the shares of all three companies are still looking cheap to me — in fact, Barratt and Bovis prices have dipped significantly over the past few months today’s levels.

We’re looking at forecast P/E multiples for this year of less then the long-term FTSE average — that stands at around 14, with the index as a whole on a forward P/E of 17 at the moment. Those P/E valuations also look set to come crashing down over the next few years too, as earnings are predicted to carry on rising strongly.

And dividends are picking up. Persimmon’s is already back to impressive levels, thanks to large special dividends the company had been paying in order to return surplus cash to shareholders.

houseA very cheap sector

And the others are rising — it’s still very early days, but the City’s analysts are forecasting yields of 4.5% from Barratt and 4.9% from Bovis for 2016.

Now, those very low future P/E values won’t last — either the consensus forecasts will turn out to be badly wrong, or these share prices are set for a few more years of healthy gains. With a majority of tipsters issuing Strong Buy ratings on our housebuilders right now, I reckon we’re still in bargain territory.

No bubble

And no, I don’t think we have any bubble to worry about right now — not with mortgage lending still lower than pre-crash, and more importantly, a fair bit more responsible these days. I think house prices now are about right.

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Alan does not own any shares in Persimmon, Barratt or Bovis.