Which is better value, the Persimmon or Barratt share price?

Barratt Developments has fallen, and the Persimmon share price has suffered even more. I put the two head to head to try to pick the best.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Businesswoman calculating finances in an office

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Persimmon (LSE: PSN) share price has slumped badly in the last couple of years — you don’t need me to tell you that. Barratt Developments (LSE: BDEV) is down too, though not as hard.

But these are stocks in a sector that’s sure to enjoy strong long-term demand in the years ahead, aren’t they?

Created with Highcharts 11.4.3Persimmon Plc + Barratt Redrow PriceZoom1M3M6MYTD1Y5Y10YALL0www.fool.co.uk

Value comparison

The businesses of these two are close to identical, and I don’t see any specific problems with either. So how might we decide which is better to buy right now?

Should you invest £1,000 in BP right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BP made the list?

See the 6 stocks

I’ll start by comparing their financial valuations. Here’s a look at a few key measures from the two firms:

Measure/CompanyPersimmonBarratt
Recent share price1,096p424p
1-year change-38%-10%
5-year change-56%-20%
Price-to-earnings ratio12.66.8
Dividend yield5.7%8.6%
Market cap£3.5bn£4.1bn
(P/E ratios and dividend yields are forecasts)

Those are some hefty share price falls. But we have just had the biggest average house price drop since 2009.

Mortgage pain is hurting. And inflation had pushed up prices for building materials. That means margins are under pressure, and builders’ profits look set to suffer.

Gloomy headlines

But when I read the headlines, I see people wailing about house prices set to fall 25% in the next five years due to high interest rates. Or 35%, or whatever.

Do we think inflation and interest rates will stay this high for five years? I don’t.

Only this week, Ocado told us it thinks the UK is “definitely over the worst” of food price inflation. And food makes up a big chunk of the total.

I think the pain is likely to be fairly short-term. And the long-term demand for homes just can’t go away, can it?

I just don’t think the share valuations of these two fairly represent the long-term profits they’re likely to make. Like any time a sector is down, I’d say share prices have dropped too far.

Stock valuations

On the figures above, the valuations of the two look quite different.

The Persimmon P/E of 12.8 might seem a bit high, but forecasts show it dropping to nine by 2025. In the other direction, Barratt’s low P/E of 6.8 looks set to rise to 10.

There’s a difference in dividend yields too. But Persimmon’s has already been cut. And the City expects the Barratt yield to fall next year, to 4.8%.

On these measures, based on the outlook for the next three years, both stocks look similarly valued.

Which is best?

Forecasts are extra risky in times like these. And yes, mortgage costs could hurt the market more over the next two or three years. So I wouldn’t be surprised to see share prices fall further before things improve.

But you know, when house prices fall, land prices should too. So in the long term, I expect margins to recover, and earnings and dividends to keep going.

I bought Persimmon shares, but I think I’d be just as happy with Barratt Developments. Or Taylor Wimpey, or…

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in BP right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BP made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Persimmon Plc. The Motley Fool UK has recommended Ocado Group Plc. 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.

More on Investing Articles

Investing Articles

Is the Rolls-Royce share price still undervalued in 2025?

After massive growth in the Rolls-Royce share price, Charlie Carman considers whether the FTSE 100 aerospace and defence stock is…

Read more »

Investing Articles

How an investor could target a £43k lifelong passive income starting with just £5 a day

Harvey Jones says it's possible to build a high-and-rising passive income by investing small, regular sums in FTSE 100 shares.…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

£10,000 invested in Lloyds shares on 7 April is already worth…

After a dip in early April, Lloyds shares are back to their 30%+ year-to-date gain in 2025. And analysts are…

Read more »

US Stock

What I’d look to buy as the US stock market heads for the worst month since 1932

Jon Smith sifts through the US stock market to try and find some ideas that have fallen in value recently…

Read more »

Growth Shares

Prediction: I think £1,000 invested in this UK stock could double by 2030

Jon Smith runs through a FTSE 250 stock with a market cap just over £1bn that he feels has the…

Read more »

Investing Articles

With £10k in savings, here’s how an investor could target a second income of £500 a month

£10k in savings could be the foundation needed towards a powerful second income. Our writer details some steps necessary to…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing For Beginners

£1k invested in the FTSE 100 on ‘Liberation Day’ is now worth…

Jon Smith talks about the volatility in the FTSE 100 in the weeks since the tariff announcements and flags up…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

Barclays’ share price is down 7% from March, so is now the right time for me to buy?

Barclays’ share price has dipped recently, which could mean a bargain to be had. I took a deep dive into…

Read more »