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Property shares: pile in or be cautious?

Property shares: pile in or be cautious?

We’ve often cautioned that Price-to-earnings growth (PEG) measures aren’t the best way to assess the property sector, which is why investors need to look beyond the excellent showing of housebuilders in our growth-at-right-price (GARP) screen. Simply put, the danger that housebuilders' profitability forecasts can be rapidly downgraded means just following a PEG ratio to value them can be dangerous. Investors should always look at the ratio of share price to net asset value (which assesses the value of unsold houses), and compare this to historic levels, to understand whether valuations are assuming too much from house price growth and if the business might be especially vulnerable to write-downs. Often a low share price to forecast profits growth for property-related businesses reflects the risk premium investors require on this metric relative to other sectors.  

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