FTSE 250

Will the Bellway share price return to its 5-year high?

Is further capital growth ahead for the Bellway (LON: BWY) share price?

Bellway’s share price (LON:BWY) has delivered a 15% rise in the past year. However, it continues to trade below the level achieved shortly before the March 2020 stock market crash, which was also its five-year high.

In fact, the current Bellway share price is around 20% down on its February 2020 level in spite of a strong recent financial performance. The housebuilder recently reported revenue that was only 2.8% below the record level achieved in the 2019 financial year, with it having risen by over 40% in the 2021 financial year.

Looking ahead, the company could enjoy continued prosperous trading conditions that aid its financial performance. Notably, demand for new homes could be supported by ongoing government support, such as through the mortgage guarantee scheme, which means only a 5% deposit is required when purchasing a home.

In addition, the Bank of England continues to maintain a relatively dovish stance on interest rates. Normally, an inflation rate in excess of 5%, and which policymakers believe will hit 6% by April, would be expected to prompt a sharp rise in interest rates. However, investors are currently pricing in a continued low interest rate by historic standards that could mean homes are relatively affordable versus wages, despite record house prices having recently been reached.

Certainly, Bellway’s share price could be volatile in the near term. The pandemic is ongoing, while economic and political uncertainty remains high. Changes to government policy, rising inflation and an unclear economic picture are just some of the risks that could weigh on its stock price prospects.

However, these uncertainties appear to be factored into its stock market valuation. The company currently trades on a forward price-earnings ratio of under 9, which is relatively low compared to many FTSE 100 and FTSE 250 stocks.

As such, at a time when inflated stock market levels are arguably making it harder to unearth stocks offering good value for money, the Bellway share price could be relatively appealing. Moreover, its net cash position of £330m and increasing land bank could provide stability and growth opportunities in the long run. Although the stock may fail to return to its five-year high in the short run, its capital growth potential in the coming years appears to be relatively high.

Not Investment Advice Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.