Down 23%, is this sub-basement housebuilder one of the best FTSE 100 stocks to buy?
Just Barratt Redrow (LSE: BTRW) down 23% from a one-year high doesn’t mean it’s one of the best FTSE shares to buy. But it is possible – it all depends on how much money is left in the stock.
This is the opposite of price, which is whatever the market is willing to pay at any given time. The price instead reflects the fundamentals of the underlying business.
So is there value left here and, if so, how high can the stock go?
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Short term versus long term
In the short term, shares have fallen due to soft demand for UK housing and high mortgage rates. The Halifax Mortgage Affordability Index shows mortgage costs at 36.2% of profit, above the long-term average. And two-year average mortgage rates of 6.20% (75% loan-to-value) and 6.57% (90% loan-to-value) – still significantly higher than pre-2022 levels. This is always a risk to the stock.
However, the long-term picture looks very encouraging. Analysts’ forecasts are for further reductions in the soft interest rate in the medium term (until the end of 2028) as inflation continues to take hold. This should give buyers more confidence in the market and increase affordability to normal levels.
A wider fillip to the housing market should come as the government moves towards its target of 1.5m new homes to be built by 2029. There are many programs available to buyers as affordability improves, including shared ownership and home equity programs.
Taken together, these trends suggest that the current weakness is cyclical rather than structural, with conditions likely to improve over time.
Recent results underscore this theme
Barratt’s H1 2026 numbers, released on 11 February, underline this comparison. Adjusted pre-tax profit fell 13.6% year-on-year to £199.9m, as margins softened in a market that continued to shrink.
However, overall completions increased by 4.7% to 7,444 homes, helped by strong volumes in the private rental sector. This shows investment groups buying blocks or sections directly from real estate developers to create long-term rental properties.
Revenue rose 10.5% to £2.63bn, supported by a 4.9% rise in average fully owned prices to £357,800.
In the same period, Barratt’s secured £97m of joint venture costs and maintained a net cash position of £173.9m. It also kept its full-year guidance unchanged at 17,200-17,800 homes.
All of this points to the business holding its ground now while building clear operational capabilities when conditions improve.
Where should it trade?
Discounted cash flow (DCF) analysis indicates where a stock should trade by projecting future cash flows and discounting them to today. Analysts’ DCF model varies – some more bullish than mine, some more bearish – depending on the variables used.
However, based on my DCF assumption – which includes a 9% discount rate – Barratt’s shares are 53% undervalued at their current price of £3.75. This means a ‘fair value’ of £7.98 – more than double where the stock is trading today.
This gap between current price and fair value is very important for long-term investors. That’s because asset prices tend to move toward their fair value over time.
As a result, this looks to me like one of the best FTSE 100 stocks you can consider buying right now.
And if it weren’t for my focus on high-yield stocks, I’d be thinking about myself.
