Since the beginning of the year, Taylor Wimpey (LSE: TW) shares have risen over 15%. And the stock has increased more than 18% during the past year.
I’m bullish on the company and think it can rise further so I’d buy Taylor Wimpey shares. Here’s why.
Trading update
Last week, the housebuilder released its trading statement for the first quarter of 2021. It was encouraging to see that the UK housing market remains resilient and that the company is trading in line with its full-year expectations.
CEO, Pete Redfern commented that “with strong market fundamentals, customer demand for our high-quality homes remains robust and we are achieving a strong sales rate and building a healthy forward order book”.
I think it’s pleasing to see that Taylor Wimpey remains on track to generate operating profit margins for 2021 in the range of 18.5% to 19%. It’s a step closer to the medium-term target of delivering operating profit margins of approximately 21% to 22%. I think this profitability goal is achievable once trading gets back to pre-coronavirus levels.
What I reckon could drive Taylor Wimpey shares higher is the strength of its order book. To date this stands at £2,808m versus the same period last year’s figure of £2,668m. The housing market seems to be bouncing back based on these numbers.
Strong backdrop
As the CEO mentioned, it’s the strong backdrop that has been helping the builder. Strong consumer demand has been assisted by low interest rates and wide mortgage availability.
The extension of the Stamp Duty Land Tax holiday and the announcement of the 95% mortgage guarantee scheme demonstrate that housing remains a priority for the UK government. There is also a shortage of good-quality housing across the UK and this works in Taylor Wimpey’s favour.
I don’t think interest rates will be rising any time soon. So mortgages should remain cheap, which should help more people get on the housing ladder. The UK government clearly doesn’t want a collapse in the property market. So incentives such as 95% mortgages should boost Taylor Wimpey shares.
Land bank
Housebuilders need land to build their properties on. So having a good-quality land bank is crucial in order to stand out from competitors.
What I thought was impressive was how Taylor Wimpey seized the opportunity to snap up pieces of land during the pandemic. In fact, last year it raised capital to achieve this. If the housing market remains buoyant, then this could be a move that generates strong returns. I guess time will tell.
Risks
Let me be frank. The housing market is dependent on economic conditions. A rise in unemployment from the coronavirus crisis could mean fewer consumers buying housing, thereby impacting Taylor Wimpey shares.
The UK government introduced various incentives to prop up the property sector during the pandemic. But there’s no guarantee this will continue, which could hit the stock.
While I acknowledge the risks, as a long-term investor, I’d buy Taylor Wimpey shares.
