Vistry Group (LSE:VTY) shares have fallen 37% since the start of the year. Over the past 12 months, the share price has fallen 39% in value. However, I’m bullish on Vistry and housebuilders in general. Like other housebuilder stocks, it has been on a downward trend this year, amid concerns about the impact of inflation and higher interest rates on demand for housing. The eventual cost of the cladding crisis has also been an issue for investors.
So, should I be buying Vistry stock as it falls?
Valuation
First of all, it looks cheap. In fact, it has a price-to-earnings (P/E) ratio of just 6.18. Its P/E is actually lower than several of its peers, including Barratt Developments, Persimmon and Crest Nicholson. One reason for this is that 2021 represented a stellar year for Vistry, and profits came in far beyond pre-pandemic levels. As the P/E is based on the previous year’s performance, this may well sway the ratio, making the stock appear particularly cheap.
Performance
Vistry Group reported “excellent progress” in 2021. The company said completions rose 23.7% to 11,080. And this was reflected in pre-tax profits, which rose to £319.5m, up from £98m in 2020 and £174m in 2019. Its year-end net cash balance also surged 515.7% to £234.5m.
In March, the FTSE 250-listed housebuilder said it was well positioned to deliver stronger profits and returns in 2022 after making “an excellent start” to the new year. It noted that the private sales rate was up 20% and highlighted a “very strong” forward sales position. Chief executive Greg Fitzgerald actually described the start of the year as “incredible“.
Vistry is also offering a very attractive 7.8% dividend yield. That’s some way above the index average. The dividend is well supported too. In 2021, the homebuilder had a dividend coverage ratio of 2.09.
Prospects
There could be some short-term pain for Vistry and other housebuilders. However, these pressures appear to already be weighing on the share price. There are concerns that inflation, a cost of living crisis and higher interest rates would stunt demand for housing.
Housebuilders have also been involved in protracted negotiations to reclad houses and apartments built using flammable panels. Vistry is seemingly less impacted by the cladding crisis than its peers, but recently announced additional costs would be £35m-£50m, having already set aside £25.2m.
However, I’m confident on long-term demand for property in the UK. Successive governments have failed to address housing shortages and there’s still massive scope for inner-city redevelopment.
Should I buy?
I recently bought the stock before it went ex-dividend and I would buy more. Vistry is currently trading at around half of its pre-pandemic price, despite positive long-term prospects and a stellar 2021. I see Vistry as a strong long-term addition to my portfolio.
