One 'hot property' growth stock I'd buy and one falling knife I'd sell

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Foxtons

Shares in Countryside Properties(LSE: CSP) are pushing higher today after the company issued an impressive set of results for the half year ending 31 March 2017. For the period the homebuilder reported 1,437 completions (including partnership completions), up 31% year-on-year, generating revenue of £435.4m, up 39% year-on-year adjusted. Operating profit rose 39% to £70.4m, and adjusted basic earnings per share grew 128% to 11.4p. Return on capital employed increased 260 basis points to 25.7%.

Alongside this robust set of results for the first half, Countryside's management also provided an upbeat outlook for the rest of the company's financial year. Management now expects results to be ahead of market expectations for the year thanks to a "sharp increase in completions which looks set to continue in the second half." The company is entering H2 with a "record private forward order book."

Undervalued?

Current City forecasts are projecting earnings per share of 25.6p for the financial year ending 30 September, but after today's update, it looks as if these figures are set to be revised substantially higher. And with this being the case, even though shares in the group have risen by 18.7% year-to-date, there could be further gains on the cards. Indeed, if the company outperforms City forecasts the shares will be trading at a low teens forward earnings multiple, which looks cheap compared to Countryside's earnings growth. The shares also support a dividend yield of 2.8% covered three-and-a-half times by earnings per share, leaving plenty of room for further growth.

This is certainly one hot property stock I'd keep my eye on.

Overvalued

On the other hand, I would avoid estate agent Foxtons(LSE: FOXT) as the company struggles to maintain its composure in London's creaking property market.

After a tough 2016 in which profits fell by more than 50%, this morning the company has reported a 25% decline in revenue year-on-year. A slowing property market seems to be entirely to blame for this decline with property sales commissions falling from £20m to £11.1m for the period. What used to be described as relatively stable lettings revenues also fell by £300,000 to £15.5m.

City analysts are expecting it to report full-year pre-tax profits of just under £14m on revenue of £124m, which can only be described as a relatively dismal performance for the group. For some perspective, during 2014 it generated a pre-tax profit of £42m. So, over the past three years, pre-tax profit has fallen by more than two-thirds.

With this being the case, it is surprising that shares in Foxtons currently trade at a forward P/E of 26, an extremely demanding valuation more suited to a high-growth tech company than struggling London estate agent.

Put simply, considering the premium valuation and falling earnings, coupled with the group's cloudy outlook it's difficult to get excited about the shares. Compared to Countryside, Foxtons looks to be a poor investment.

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Rupert Hargreaves has no position in any 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.