A host of FTSE 100 stocks have soared over the last few days, but Persimmon (LSE: PSN) shares have smashed the lot of them. They’re up 12.51% over the last week, ahead of second-placed Ocado Group (up 12.39%) and Hargreaves Lansdown (11.14%).
All the housebuilders did well on Wednesday 19 July. Shares in Barratt Developments and Taylor Wimpey jumped more than 5% after June’s lower than expected inflation figure of 7.9%. Yet Persimmon led the charge.
The FTSE 100 housebuilder has had it tough lately. Soaring mortgage rates threaten sales prices while building materials and labour costs have climbed with inflation. Today, Persimmon’s shares trade at around 1,186p. It’s around 10 years since they were this low.
Cheapest in 10 years
Today, it looks like the doom was overdone. Just a few days ago, markets were pricing a base rate peak of 6.5%. Now they’ve slashed that to 5.75%. The Persimmon share price jumped a massive 8.29% yesterday, as markets decided it had been oversold. It’s up another 2% today, as I write
Persimmon has fallen harder than the other housebuilders this year, after it issued a profit warning in March and slashed its dividend by 75%. The yield had got ridiculously high at 20% last autumn, and clearly wasn’t sustainable.
In April, it posted a brutal 42% drop in Q1 new home completions to 1,136. Net private sales per outlet fell 37%. This was largely down to fallout from last September’s mini-Budget fiasco, which sent mortgage rates soaring and demand crashing.
Over the last 12 months, Persimmon is the second-worst performing share on the entire FTSE 100, crashing 34.72%. Only Vodafone fared worse falling 43.91%. Measured over five years, Persimmon shares are down a punishing 52.87%. Which is odd, given how house prices have rocketed over the same period.
The longstanding fear is that the UK property market is seriously overvalued after years of near-zero interest rates drove up prices. Yet much of the danger is now reflected in Persimmon’s dirt cheap valuation of just 4.8 times earnings.
I’d buy them today
The stock is forecast to yield 5.09% this year, and 5.3% in 2024. As Persimmon shareholders know better than most, dividends aren’t guaranteed. Yet these numbers look more sustainable than the earlier blockbuster yield. Better still, the company has a net cash position of £582m, which is forecast to hit £640m in 2024.
There are risks to buying Persimmon today. The stock may give up some of its recent gains as investors worry about the next set of data. House prices are set to be volatile and things could turn nasty if the Bank of England is too hawkish for too long.
Yet with a five or 10-year view, I think the shares look still look a great buy (even if they were an even better buy a week ago). I already hold them in my portfolio, after buying them in October at roughly the same share price as today. If I didn’t, I’d buy more of them today.
