2014 has been a disappointing year for investors in Redrow (LSE: RDW), with the North-focused housebuilder seeing its share price fall by 8% since the turn of the year. However, results released today show that the company is making excellent progress and could have a very bright future. Indeed, sector peers Bovis (LSE: BVS) and Taylor Wimpey (LSE: TW) also have strong prospects, with all three housebuilders having the potential to transform your portfolio.
As mentioned, Redrow released upbeat results today that showed an increase in net profit of 91%. Furthermore, the company is very upbeat about the next year, despite new Bank of England mortgage rules normalising the housing market somewhat. A key reason for this is an 18% increase in the current land bank, with many of the new plots being in the south of England. This could prove to be a more lucrative area than Redrow’s traditional geographies and help to further growth the company’s bottom line.
A Bright Future
It’s not just Redrow’s management that are bullish about the company’s future. The market is expecting the house builder to increase net profit by as much as 22% in the current year, which is well ahead of the wider market growth rate. The interesting thing for investors, though, is that Redrow currently trades on a very low valuation and this means there could be share price growth ahead. For instance, Redrow trades on a price to earnings (P/E) ratio of just 8.1, which when combined with its P/E ratio equates to a price to earnings growth (PEG) ratio of just 0.4. This indicates significant upside potential.
However, it’s not just Redrow that could see its share price move higher. Even though sector peers Bovis and Taylor Wimpey have seen their share prices rise by 6% and 2% respectively in 2014, they also offer strong growth at a very reasonable price. For instance, Bovis is expected to increase its bottom line by 72% in the current year and by 32% next year, while Taylor Wimpey’s forecasts are also very impressive. It is due to see profit growth of 56% in the current year and 33% next year.
With Bovis and Taylor Wimpey both trading on P/Es of 10.9, their PEG ratios of 0.2 look hugely appealing. Indeed, along with Redrow, all three stocks could be top performers over the medium term and, as a result, could make a positive contribution to your portfolio.
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