The Persimmon (LSE: PSN) share price has tumbled almost 13% in the last month. This means the stock has lost almost 45% in value in the last year.
Having begun building a position in the company earlier in 2023, this has left me in something of a quandary. Should I regard this as a once-in-a-decade opportunity to keep buying, or stop now before my portfolio really starts to bleed?
It’s a tricky one.
Fundamentally sound
I don’t have any doubts that I’ve invested in a good company. Persimmon is one of the UK’s biggest housebuilders with a vast and valuable land bank. These are clear attributes considering the ongoing shortage of quality homes in the UK.
The balance sheet also looks far stronger than it did during the dark days of the Financial Crisis. This is not 2008. At least, not yet.
And when the property market is buoyant, the business delivers some of the largest operating margins and returns on capital employed in the sector.
Having said this, the near-term outlook is undeniably bleak.
Interest rates keep climbing
The problem with owning shares in any company linked to housing right now is that UK interest rates keep galloping higher.
The most recent 0.5% rise was a slap in the face for those dreaming of buying a new property, or those whose fixed-rate deals are coming to an end.
It was also a cautionary tale to not take anything analysts say for granted. The majority predicted a 0.25% rise. There’s also a chance interest rates could rise to 6% in time. Perhaps they’ll even go higher.
Regardless, it means that mortgage payments are about to get (a lot) more expensive. That’s going to lower completion rates and, subsequently, earnings at Persimmon.
So yes, there’s a clear risk that the shares could continue falling.
Staying positive
However, this scenario probably applies to every housebuilder. Indeed, there’s something rather comforting about knowing that things aren’t great for any company in the sector.
I’m also comforted by the fact that Persimmon operates throughout the UK rather than just in the more expensive southern regions. After all, buyers have traditionally had to borrow more to buy in the latter. Logic would dictate that they will experience more pain than most from higher mortgage payments in the months ahead.
Although cut substantially, there’s the dividend stream to consider as well.
No, a forecast yield of 5.8% is clearly not enough to keep up with current inflation. However, at least I am being paid for my patience.
The price-to-book (P/B) ratio — essentially how much I’m asked to pay for the land and property the business owns — is also more attractive than it once was (albeit still pretty average compared to peers).
No rush
As someone who invests to build wealth, it’s never pleasant to be underwater in a position. As things stand however, I’m inclined to buy more Persimmon shares when cash becomes available while also ensuring that I’m fully diversified elsewhere.
That said, I don’t believe there’s any need to rush. Unless we’ve hit peak negativity (and I’m not sure we have), the Persimmon share price won’t rocket anytime soon.
Adopting a long-term mindset, like any respectable Fool, is vital.
