I can’t buy this FTSE share and it’s driving me nuts! 

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Many FTSE shares have shaken off their gloom and burst into life over recent days. And I’ve been buying a few of them to hold for the long term.

However, I can’t buy every attractive stock because of limited funds. And there are several that will need to stay on my watch list for the time being — and it’s driving me nuts! 

Low-looking valuation

For example, I’m keen on house building company Vistry (LSE: VTY). The stock can be found in the FTSE 250 index. And with the share price near 921p, the market capitalisation is around £2bn.

The mid-cap business has a low-looking valuation. The anticipated earnings multiple for 2023 is around 6.4 and the estimated dividend yield is above 8%. Meanwhile, comparing the price against assets throws up a price-to-book value just above 0.8.

However, house building is a cyclical industry. And it’s not uncommon to see low valuations among cyclical companies after they’ve enjoyed a long period of high profits. It’s the market’s way of trying to be ready for the next plunge in earnings.

But there’s no sign anywhere of the next plunge in earnings! Vistry released a trading update on 8 July and chief executive Greg Fitzgerald was bullish about the company’s prospects. He said the firm’s first-half performance had “significantly exceeded” the directors’ expectations at the start of the year.

Strong demand

Vistry experienced “strong” demand in the first six months of 2022. And, looking ahead, Fitzgerald predicted adjusted profit before tax at the “top end” of market forecasts for 2022. Analysts’ have probably revised their assumptions since that update. And the current consensus is for earnings to shoot up by almost 22% this year.

Of course, even directors can be wrong about future earnings targets. But it’s hard to deny that Vistry has been trading well over recent years. Fitzgerald thinks part of the reason for that is the firm is “one of the largest” private sector providers of affordable housing. And it’s also has “leading capability across all housing tenures”.

I don’t think it’s wise to invest in a company like Vistry without taking a view about where the housing market may be going. And there are some uncertainties and risks to think about, that’s for sure. But at the current level, the share price is around 24% below where it was a year ago. And that’s a sufficient discount for me to take a chance on the stock today.

I’d aim to hold for years

There’s no guarantee of a successful long-term investment outcome. And that’s even though I’m seeing good value now. However, I’d take comfort from that chunky dividend yield. And I’d hold for the long term as operational progress unfolds in the business.

My guess is Vistry will have a low valuation for years to come. So, I’m not expecting a valuation re-rating to drive my investment outcome. However, even low-rated businesses sometimes have the potential to deliver a decent investment outcome over time. 

The post I can’t buy this FTSE share and it’s driving me nuts!  appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.