I never fully understood why the FTSE 100‘s housebuilders, like Taylor Wimpey (LSE: TW), fell so hard in the 2020 stock market crash. Sure, lockdowns made it a lot harder for people to move house, and that was certain to have an adverse effect on profits. But did the Taylor Wimpey share price really deserve to lose more than 50% in the early months of Covid-19?
I can think of plenty of companies whose longer-term futures could have been seriously threatened by the pandemic. But I see housebuilding as one of those real essentials, providing the things that humans just can’t manage without… food, energy, clothing, housing, all that stuff. What’s more, in the UK we’ve been in the grip of a housing shortage for decades.
Since that big slump, the Taylor Wimpey share price has put in a remarkable recovery. We’re still looking at a 20% fall since the start of the panic, though. And it’s arguable that maybe the shares were a little overheated back in early 2020. After all, looking at the past two years, we see zero net share price movement.
Taylor Wimpey share price future
So how should we see the prospects for housebuilders today, and specifically for the Taylor Wimpey share price? Will we get back to that immediate pre-crash optimism? Have we seen a reset to a more realistic outlook from a year previously? Or are there more pandemic shocks still to come? That third option is definitely possible. And even as an investor in the sector (I own Persimmon shares), I’m being careful not to discount it.
While the future is speculative, the past and present are fact. And Taylor Wimpey has given us some idea of what the recent past has held. In a trading statement released Thursday, the company updated us on what’s happened so far this year and what things are looking like.
Chief executive Pete Redfern said “The UK housing market continues to be resilient and we are trading in line with our full year expectations.” He spoke of strong market fundamentals and customer demand, and added that “we are achieving a strong sales rate and building a healthy forward order book.” Does that sound positive for the future of the Taylor Wimpey share price?
Healthy order book
By 18 April, that order book stood at approximately £2,808m, up on the £2,668m from the same period a year previously. That 2020 period was split pretty much in half by the start of the pandemic. But this year’s figure still represents 10,995 homes. And that, to me, is a sign of a potentially thriving long-term business.
Taylor Wimpey reiterated its dividend plan too, with a 2020 final of 4.14p per share. When the firm will get back to returning excess capital in addition to the ordinary dividend remains to be seen. The situation will be reviewed next year, at 2021 final results time.
But back to the Taylor Wimpey share price, and what do I think of its valuation now? I really do think that Covid-19 fears might put the brakes on progress for perhaps another year. And the optimism might not return until we see how 2021 turns out. But I do still think Taylor Wimpey is a good long-term investment.