Could Bovis Homes Group plc Outperform Berkeley Group Holdings PLC, Taylor Wimpey plc And Redrow plc?

housebuildingIt’s been a challenging few months for investors in Bovis (LSE: BVS) as shares in the company have fallen in price by 18% since the start of March. Despite this, the company continues to perform well, with a trading update this week stating that profits would be significantly higher this year than last year. Indeed, Bovis has benefited from an 11% higher sales price than last year, as well as an increase in the number of homes it built of 54%.

A Great Play On The UK Recovery

Clearly, the future fortunes of Bovis are closely linked to the fortunes of the UK economy, as are all housebuilders.  Trading on a price to earnings (P/E) ratio of just 10.1, though, Bovis seems to offer great value at present, despite the UK economy going from strength to strength. Indeed, although earnings per share (EPS) are starting from a relatively low base as a result of the credit crunch hitting housebuilders like Bovis very hard, the company is forecast to increase EPS by 70% in 2014 and by 31% in 2015. These are extremely impressive growth rates and, at the moment, do not seem to be priced in by the market.

The Competition

Of course, Bovis isn’t the only housebuilder that looks attractive right now. Unlike Bovis, Berkeley Group (LSE: BKG) (NASDAQOTH: BKGFY) is focused on London and, as such, has recovered profitability earlier than many of its peers. As a result, Berkeley’s growth rates are more in line with the wider market — 5% this year and 7% next year. However, shares still offer great value and trade on a P/E of just 10.2, which is well below the FTSE 100 P/E of 14.2.

In addition, Taylor Wimpey (LSE: TW) and Redrow (LSE: RDW) also highlight just how much value there is among housebuilders. They trade on P/Es of 10.9 and 9.9 respectively and, as with Bovis, offer extremely strong EPS growth prospects this year and next year. For example, Taylor Wimpey is expected to increase its bottom line by 54% this year and 32% next year, while Redrow’s profits are forecast to jump by 65% in 2014 and 33% in 2015. Therefore, the share prices of both companies do not yet appear to be factoring in such high growth levels, which could mean strong outperformance in future.

Back To Bovis

Clearly, there is a potent mix of great value and superb growth potential among housebuilding stocks. However, with its higher expected growth rate than peers over the next two years, Bovis could prove to be the top performer. There is, though, great potential in all four stocks for investors over the medium to long term.

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Peter owns shares in Taylor Wimpey.