Wednesday, 11 June 2008

Barratts - the numbers are just crazy

Take a look at Barratts numbers - it has a dividend yield of 40 percent and a price to earnings ratio of less than one! It is down 93 percent in one year, and 20 percent so far today.

Investors must really hate this stock.

11 comments:

greenspan's ear said...

A p/e of less than one! Doesn't that mean that if you buy a share the dividend in one year will cover the cost?

pcso said...
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Anonymous said...

p/e is based on the past, the future is grim.

Ruby Roo said...

Those numbers suggest bankruptcy is imminent.

Anonymous said...

Yup. The market says "insolvent".
I take it you've been watching Lehman's today? In the office here we had more excitement in the first hour of NYSE exchange than all of Euro 2008 combined.

Mind you, we're sad.

Nick

aSteve said...

It is slightly misleading to say that P/E is based on the past. The Price is the current price - and the E is what the earnings prediction was when it was last done... maybe almost a year ago.

I wouldn't hang your hopes on a big dividend from a company that needs to raise £1bn to survive and is making a loss every day.

They had 113,500 plots for future houses at the end of 2007 too... but need income to service almost £2bn in debt.

vodka drinker said...

asteve, going backwards or looking fowards a p/e ratio of less than one is the sign of a very sick company.

Anonymous said...

Barratt - overloaded with debt, too much land and no market for its product.

aSteve said...

Vodka, I agree... similarly, you could say that any company which devalues by significantly over 90% in one year is a sign of a very sick company.

The point I made about P/E ratios, however, has a far wider significance. We are now undoubtedly in a bear market... and traditional wisdom in a bear market is to buy stocks with a high P/E ratio. The snag is that the P/E ratios for many companies - not just Barratt is plain fantasy. We should not, for example, believe the P/E ratios of banks or retail operations... unless we are absolutely convinced by the earnings projection.

Mark Wadsworth said...

I've done some fun with numbers on Barratt's 2007 interims.

Looks like the stock market is pricing in a house price crash back to mid-1990s levels (adjusted for earnings).

huntse said...

The old stockbrokers rule was always that if the dividend yield was larger than your hatsize (in inches) then the market thinks the divi is certain to be cut.