Despite all signs pointing to the contrary, the pandemic proved to be kind for property stocks. The stamp duty holiday provided last year led to a housing market boom, and along with that a run-up in real estate stock prices. The FTSE 250 house builder Vistry Group (LSE: VTY) is one of them. In the last one year, its share price has doubled.
Robust results
But I think the best may be yet to come for it. In its results released yesterday, the company showed robust performance. For the first half of 2021, it has shown an increase in revenue and has also made profits, compared to the losses incurred during the same time last year. It now expects full-year profits to be ahead of consensus estimates. And going by both its current results and its outlook, the company has also increased its dividend payout. Its present dividend yield is 3.3%.
Even though the biggest impetus for property markets in the UK, the stamp duty holiday, is now in the process of getting rolled back, I do not think that we are necessarily looking at a slump in the sector in the near future. The economy is on its way back up, which is always good news for cyclical sectors like real estate. Interest rates are low and savings for UK’s households are high, thanks to the lockdowns.
Pricey FTSE 250 stock
Based on this, I think it is evident that the Vistry Group is in a good place. However, there is a downside to the stock too. After its latest results, its price-to-earnings (P/E) ratio is 21 times. This is high compared to its bigger FTSE 100 peers. Persimmon, for instance, trades at 11.5 times and Barratt Developments trades at 11 times. This does increase their relative attractiveness, even though Vistry is performing well.
Inflation and another lockdown
An increase in interest rates, in response to rising inflation, is also a risk for not just the company but the entire sector. While so far inflation is seen as transitory, we will have to wait and watch whether that is indeed the case. If it is not, monetary policy will kick in sooner rather than later, which could squeeze the property markets.
Last, but far from least, I think that the pandemic may still prove to be a challenge. Coronavirus cases have been on the rise, leading to reports of a potential ‘firebreak lockdown’ next month. If that lasts a while, I am not sure if further support to real estate will be possible going by the government’s huge debt buildup.
My takeaway for the Vistry stock
The risks, while serious, may not play out. Or even if they do, there is likelihood of their being short-lived. Keeping this in mind, I am positive on the Vistry stock. But, I have my doubts if it will double my money again in the next year, especially because it is relatively pricey compared to other property stocks. The past year has been an outlier, so I would not rely on this particular trend as a predictor of the future. It is on my investing radar for now, though.
