Down 23%, is this bargain-basement housebuilder one of the best FTSE 100 stocks to buy? 

Just because Barratt Redrow (LSE: BTRW) has dropped 23% from its one-year high does not mean it is one of the best FTSE stocks to buy. But it could be — it all depends on how much value is left in the stock.

This is a different thing to price, which is simply whatever the market is willing to pay at any point. Value instead reflects the core fundamentals of the underlying business.

So is there any value left here and, if so, how high could the stock go?

Short-term versus longer-term

In the short term, the shares have fallen due to softer UK housing demand and higher mortgage rates. The Halifax Mortgage Affordability Index shows mortgage costs at 36.2% of earnings, well above the long‑term average. And average two‑year fixed mortgage rates are 6.20% (75% loan-to-value) and 6.57% (90% loan-to-value) — still far higher than pre‑2022 levels. This remains a risk for the stock.

However, the longer-term picture looks more encouraging. Analysts’ forecasts are for further gentle interest rate reductions over the medium term (to end-2028) as inflation continues to ease. This should give buyers more confidence in the market and boost affordability toward more normal levels.

A broader fillip to the housing market should come as the government moves towards its target of 1.5m new homes being built by 2029. Various initiatives are in place for buyers as affordability improves, including shared ownership and mortgage guarantee schemes.

Taken together, these trends suggest the current weakness is cyclical rather than structural, with conditions likely to improve over time.

Recent results underline this theme

Barratt’s H1 2026 numbers, released on 11 February, underline this contrast. Adjusted profit before tax fell 13.6% year on year to £199.9m, as margins softened in a still‑subdued market.

However, total completions rose 4.7% to 7,444 homes, helped by stronger private rental sector volumes. This reflects investment groups buying entire blocks or phases directly from the housebuilder to establish long-duration rental assets.

Revenue increased 10.5% to £2.63bn, supported by a 4.9% rise in wholly‑owned average selling prices to £357,800.

At the same time, the Barratt’s confirmed £97m of cost synergies and maintained a solid £173.9m net cash position. It also kept its full-year completion guidance unchanged at 17,200-17,800 homes.

All of this points to a business holding its ground now while building clear operational leverage for when conditions improve.

Where ‘should’ it be trading?

A discounted cash flow (DCF) analysis identifies where a stock should trade by projecting future cash flows and discounting them back to today. Analysts’ DCF modelling varies — some more bullish than mine, others more bearish — depending on the variables used.

However, based on my DCF assumptions — including a 9% discount rate — Barratt’s shares are 53% undervalued at their current £3.75 price.This implies a ‘fair value’ of around £7.98 — more than double where the stock trades today.

This gap between the current price and the fair value is extremely important for long-term investors. That is because asset prices gravitate towards their fair value over time.

Consequently, this certainly looks to me like one of the best FTSE 100 stocks to consider buying right now. 

And if it were not for the fact that I am focused on high-dividend-yielding stocks, I would consider it myself.

The post Down 23%, is this bargain-basement housebuilder one of the best FTSE 100 stocks to buy?  appeared first on The Motley Fool UK.

More reading

• Is this hot bargain one of the FTSE 100’s best stocks to buy?
• As the FTSE 100 hits record highs, these top shares are still dirt cheap!

Simon Watkins has no position in any of the shares mentioned. The Motley Fool UK has recommended Barratt Redrow. 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.

See author's posts