As the Persimmon share price rises, should we buy before it’s too late?

The Persimmon share price is still down in the dumps after collapsing in 2022. But we have a flicker of light, as house prices just rose.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

a couple embrace in front of their new home

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Persimmon (LSE: PSN) share price gained 5% in morning trading on 7 November, after the house builder posted a Q3 update.

It comes as we hear that house prices have risen for the first time since March. According to Halifax, October came in 1.1% ahead of September, due to a shortage of properties for sale.

Persimmon shares have a long way to go to recover from their 2022 slump, though. But do we finally see some light?

On track

New home completions in the quarter fell 37% compared to Q3 in 2022. And forward sales declined by 23%.

But that’s what the City expected, so it’s no shock.

Chief executive Dean Finch did point out that “the near term is likely to remain challenging“.

But the overall take I get is that Persimmon is very much focused on the long term. And, as an investor, that’s exactly what I want to see.


This year at least looks like it’ll be no worse than feared.

The CEO said: “Trading in the period was in line with expectations and pricing was broadly stable. We are on track to deliver around 9,500 quality new homes in 2023 with operating profit in line with expectations and at an operating margin similar to the first half“.

I don’t really care too much how the short-term outlook looks. But that sounds good enough.

He added that “we continue to position the business for growth when the market recovers“.

What recovery?

So, will the property market recover? I don’t want to be too optimistic on the basis of one upward month. But in the long term, I don’t see how it can’t.

There’s a chronic housing shortage in the UK. And that should surely make the building business a cash cow for the long term.

There are, though, some short-term risks.

The main one, I think, is stock valuation. The Persimmon share price has lost 50% in five years. But, on the back of a years-long property boom, had it risen too high? It might have done.

Correction needed?

Going by broker forecasts, we’re on a price-to-earnings (P/E) ratio of 14. If anything, I think that might be a bit high right now.

It would drop to about 10 by 2025, assuming earnings start to grow again. And these forecasts are always a bit old, as it can take months for them to be updated as things change.

Dividend forecasts vary quite a bit too, from around 5.5% to nearly 7.5%, depending on who we ask. That shows uncertainty, for sure.

Dividend uncertainty

The Q3 update told us nothing new on the dividend front. So all we have right now is the interim dividend of 20p per share.

Persimmon’s focus is on cost control. And if cash runs short, the dividend could be cut.

So, while even 5.5% looks like a good return to me, I can see why folks might be a bit wary.

But all this uncertainty and pessimism says one thing to me. It says I want to buy more Persimmon shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Persimmon Plc. 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.

More on Investing Articles

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

Nvidia shares hit a new high after record earnings. Is there a lot more to come?

Nvidia stock smashes expectations, as quarterly profit soars 600%. It's time for a 10-for-one stock split too, as it reaches…

Read more »

Abstract 3d arrows with rocket
Investing Articles

Scottish Mortgage shares rise following FY update! Time to buy?

Scottish Mortgage (LON:SMT) shares were closing in on 900p today after a positive full-year report from the giant FTSE 100…

Read more »

British Isles on nautical map
Investing For Beginners

It’s time! Here’s my FTSE 100 hit list for the general election

Jon Smith outlines the potential reaction for the FTSE 100 from the upcoming general election and the main stocks he's…

Read more »

Investing Articles

National Grid reveals £7bn rights issue and the share price plunges – should I invest now?

The National Grid share price has dropped almost 10% and a dividend cut is looming, but it may be a…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Nvidia stock is becoming more affordable!

Nvidia stock is up 2,500% over five years, but the chip giant’s share split -- announced during its earnings report…

Read more »

Investing Articles

Are Rolls-Royce shares good for passive income?

Our writer is getting mixed messages about the Rolls-Royce dividend. But whatever happens, he thinks passive income hunters will be…

Read more »

Investing Articles

Could the Rolls-Royce share price end 2024 above £5?

As the Rolls-Royce share price continues its remarkable run, our writer considers where it might be at the end of…

Read more »

Investing Articles

UK stocks are hitting all-time highs! Yet these 2 still look cheap to me

The FTSE 100's on a roll. But it's still possible to pick bargain UK stocks, provided we know where to…

Read more »