If I’d put £1,000 in Persimmon shares 3 months ago, here’s what I’d have now

Persimmon (LSE:PSN) shares have demonstrated considerable volatility in recent years. But it’s a cyclical stock and reflects the health of the UK economy. And, like its peers, the rise in interest rates had a profound impact on business performance.

However, Persimmon stock started ticking up in October. And that reflects a more positive economic outlook and the notion that peak interest rates had been reached.

So if I’d put £1,000 in Persimmon shares three months ago, how much would I have now? Well, the stock has surged 33.1% since then. My £1,000 would be worth £1,331 today. I’d also have received a dividend payment worth around £20.

In other words, it would have been a very successful investment.

Improving performance

On Wednesday (10 January), Persimmon reported its Q4 trading figures, and impressed the market. The firm said it had beaten its own guidance for new home completions in 2023, and was starting 2024 on a strong footing.

Last year, the company achieved a total of 9,922 new home completions, marking a 33% decline from 2022. However, this was significantly above the 9,500 target set in November.

Average selling prices increased by 3% year on year to £255,750, with private selling prices rising 5% to £285,770. However, market softness and increased discounting were observed in H2.

Full-year operational margins are projected to align with the first half at 14%, reflecting inflation in build costs, reduced volumes, and one-off remediation costs for a small number of completed sites, alongside an accelerated exit from two sites.

These results are fairly robust, especially when you consider the less-than-robust forecasts for the housing sector. Who remembers those analysts saying house prices could fall 20%?

Looking forward

Persimmon highlighted it was starting 2024 in a marginally stronger position than 2023, with forward sales up 2% versus the previous year. However, with the Bank of England rate at 5.25% and the help-to-buy scheme scrapped, the company accepted the uncertainties and challenges facing first-time buyers.

Interestingly, we’re now seeing Persimmon trade above its price target, and that could be a concern for some investors. As I write, the stock is 3.54% above the price target. However, given the surging share price in recent month, I’d suggest thais represents a lag on the part of the analysts.

The stock currently has four ‘buy’ ratings, 12 ‘hold’ ratings, and one ‘sell’ rating.

So would I buy Persimmon stock? Well, personally I’m holding off. And one reason for that is the valuation. Below, I’ve compared earnings per share (EPS) forecasts with the current share price, to create forward price-to-earnings (P/E) ratios.

In my opinion, Persimmon looks expensive despite the impressive earnings growth. However, I’d caveat this comment on earnings growth by noting that it’s starting from a low base. I don’t plan on buying this stock soon.