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Barratt share price: why is it underperforming the FTSE 100?

In the last year, the Barratt (LSE: BDEV) share price has fallen by 8%. That’s a worse performance than the FTSE 100’s rise of 2% and suggests that investor sentiment towards the company remains weak.

One reason for this could be the uncertainty surrounding the UK’s economic outlook. With Brexit under a year away and the prospects for the economy being downgraded recently by the Bank of England, this may not be a major surprise. But for long-term investors, it could present a buying opportunity for UK-focused stocks such as Barratt.

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Positive outlook

Despite the risks facing the UK economy at the present time, the outlook for housebuilders remains relatively upbeat from a fundamental perspective. Interest rates were kept on hold this month, and it seems unlikely that there will be more than one rate rise before the end of the year. This could help to support demand for new-build houses – especially since their supply remains somewhat limited.

Furthermore, Barratt could benefit from policies such as Help to Buy, which has been a major catalyst for housebuilders’ financial performance in recent years. It has focused first-time buyers on new-build properties, rather than older ones. Its continuation could mean that the housebuilding industry enjoys further growth over the next few years.

Low valuation

With Barratt due to post a rise in its bottom line of 6% this year and 5% next year, the company appears to be performing relatively well. Despite this, it has a price-to-earnings (P/E) ratio of around 10, which suggests that it may be undervalued at the present time.

Certainly, Brexit has the potential to cause disruption to the UK economy. Thus far, confidence among businesses and consumers has weakened, and this trend could continue over the coming months. Therefore, volatility for the company could be high. But with a positive outlook and a low valuation, it could outperform the FTSE 100 over the long run.

It’s a similar story with other UK-focused stocks, and there could be significant investment opportunities available for investors. Reporting on Monday was UK retailer Angling Direct (LSE: ANG), which may also offer growth at a reasonable price.

Impressive performance

The UK’s largest fishing tackle retailer reported revenue growth of 44% for the 2018 financial year. Its operating profit increased by 27%, with acquisitions and new store openings contributing to its overall performance. And with online sales increasing by 54%, it seems to be well-placed to capitalise on continued growth in digital services across the economy.

The investment made by the business in marketing campaigns and in customer service initiatives seems to be paying off. It has enjoyed a strong start to the current financial year, and is on track to meet its guidance.

With Angling Direct expected to deliver a rise in its bottom line of 63% in the current year, it appears to be a strong growth stock. Its price-to-earnings growth (PEG) ratio of 0.6 suggests that it has a wide margin of safety and may be able to deliver impressive share price growth despite the risks from Brexit.

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Peter Stephens owns shares of Barratt Developments. 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.

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