If you have some money to buy a firm’s shares, you want to be confident that you are buying into a business that will generate the best returns. That’s always the objective for any investor, of course, but when you don’t have enough money to diversify as much as you might want to, it becomes even more crucial.
The good news is that while shares overall have made a good start to 2019, the FTSE 100 rising a little over 5% and the FTSE 250 by more than 6%, there are still ‘bargains’ to be had that could offer investors more bang for their bucks.
So, if you have £2,000 to invest I’d suggest looking at investing it now to take advantage of a market that is recovering from the dip in late 2018 but is still more affordable than it was last spring. Housebuilders were hit hard by the volatile market last year and there’s one company in particular that suffered, yet has been rising more recently but that I think still looks appealing today.
Safe as houses?
Redrow (LON: RDW) is a housebuilder in the FTSE 250 and the company’s share price is up by 19.5% so far this year. Clearly, the share price has some good momentum but is it now unaffordable? No. The company is still cheap – the P/E is a very low 6.8 and alongside that, its shares also give investors an income with a dividend yield of over 4.5%.
Recent results should offer investors reasons for optimism, in my opinion. In the six months to the end of December 2018, pre-tax profit rose 5% to £185m on revenue of £970m, up 9% from the first half of the previous year. Given the P/E is so low, this strikes me as being really impressive, coming against the backdrop of Brexit uncertainty and overall house prices falling.
Redrow has a track record of growth, profit before tax in 2014 was £133m and in 2018 it was £380m – that’s an increase of over 185%. Meanwhile, over the same timeframe, the number of legal completions jumped by 64%. This gives me confidence in its management and the ability of the company to capitalise on the opportunities in the market.
In the most recent results, legal completions were up 12% to 2,970 and earnings per share increased 5% to 41.5p, while the return on capital employed came in at 28% versus 25% the year before. The interim dividend was lifted by 11% to 10p a share.
A worthy investment
I see Redrow as a company that should be able to generate good returns on any investment I might make in it given its low P/E and fairly juicy yield. And if it can do that at a time when Brexit is casting clouds over the housing industry, then the future may be even rosier for investors if any kind of Brexit resolution gives business increased certainty and creates more demand for housing. The historic performance of the company, although not a guarantee of future success, does offer reassurance that it can operate in any market environment and still create returns for investors.
Andy Ross has no position in any of the shares mentioned. The Motley Fool UK has recommended Redrow. 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.