Shares in estate agent Foxtons (LSE: FOXT) have sunk by 6% today after it released a rather mixed trading update. Although the company is on-track to meet full-year expectations, the property market is taking time to recover following the General Election in May. As such, and while customer activity levels have picked up somewhat in recent months, property transaction levels remain low due to strong recent price growth and stamp duty changes.
Looking ahead, Foxtons is forecast to post a rise in earnings of 4% in the current year, followed by growth of 10% next year. These figures are relatively impressive and put Foxtons on a price to earnings growth (PEG) ratio of just 1.6, which indicates that its shares are undervalued and could continue their 29% rise since the turn of the year.
Certainly, transaction levels in prime London property could disappoint in the coming months. The prospect of interest rate rises, concerns surrounding affordability and stamp duty changes may weigh heavily on buyers’ minds but, with a very fair valuation and proven business model, Foxtons seems to be a sound buy for the long term.
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Offering greater appeal than Foxtons, though, is prime property developer Berkeley Group (LSE: BKG). It is due to deliver staggering earnings growth over the next couple of years, with its bottom line set to be 44% higher in financial year 2017 than it was in financial year 2015. Despite such a strong rate of growth, Berkeley Group has a forward price to earnings (P/E) ratio of only 8.5, which indicates that the market has not yet priced in its excellent forecast growth rate.
As well as a low valuation and high growth potential, Berkeley continues to be a superb income stock. It yields 5.2% at the present time and yet pays out just 44% of profit as a dividend. This indicates that shareholder payouts are set to rise in the coming years and, with interest rates rises due to be rather pedestrian, Berkeley could become an even more enticing income play, which has the potential to improve investor sentiment in the stock.
Meanwhile, BT (LSE: BT-A) continues to become a more dominant player in the quad play market. This is expected to improve the company’s bottom line, with net profit forecast to rise by 7% next year. And, with BT trading on a P/E ratio of 14.3, it could be argued by some investors that it is worth buying at the present time – especially if it is able to successfully cross-sell its mobile offering to existing broadband and landline customers.
However, within the quad play market, there appear to be better opportunities. For example, Sky recently reported an excellent quarter and Vodafone’s earnings growth rate is set to be three times that of BT nextyear. And, while operational problems have hurt TalkTalk’s investor sentiment, it appears to offer superior growth and value than BT, too. So, while BT may be appealing on the one hand, on a relative basis its sector peers seem to be more worthy of purchase right now.
