Here’s why the Persimmon share price fell 14% in November

November wasn’t a great month for UK house building companies. But the Persimmon share price indicated it has problems the wider industry isn’t seeing.

| 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.

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 FTSE 100 managed to advance almost 2% last month. And that’s despite the Persimmon (LSE:PSN) share price going down 14%. 

Created with Highcharts 11.4.3Persimmon Plc PriceZoom1M3M6MYTD1Y5Y10YALL1 Dec 20191 Dec 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

November was a bad month for shares in house building companies. But that doesn’t even begin to explain why Persimmon lost over a fifth of its market value. 

Reports

Earnings reports can often be a major catalyst for share price changes. And so it proved with Persimmon, with the company’s latest update going across quite badly with investors.

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

Things weren’t all bad by any means – demand looks strong and orders were up 17%. On top of this, UK mortgage approvals have just hit their highest levels in two years.

That’s a good thing, but it probably doesn’t matter much if Persimmon isn’t able to make any money from it. And that’s the issue the company identified. 

The firm indicated it expects higher costs in 2025 from a mix of inflation, new building regulations, and the Budget. That’s why investors sent the stock down 8% in response.

Competition

Arguably, the last thing any firm needs after warning about future costs is another company immediately offering a more positive outlook. But that’s exactly what happened to Persimmon.

The day after Persimmon’s report, fellow FTSE 100 builder Taylor Wimpey offered its own update. And it gave no indication of higher costs weighing on profits either this year or next.

There are a couple of ways of viewing this, but neither is good for Persimmon. One is that its cost challenges are specific to the business, rather than the wider industry.

The other is that Taylor Wimpey investors are in for a surprise. That might be bad for them – and we’ll see next year – but it’s no help for Persimmon’s shareholders 

Buy the dip?

I’m not going to keep anyone in suspense here – I’m not buying shares in either Persimmon or Taylor Wimpey. They look cheap and have attractive dividend yields, but I’m staying away.

One of the key lessons of 2024 is not to discount regulatory risks. Investors in Lloyds Banking Group knew about the car loans investigation since January, but ignoring it has proved unwise.

The Competition and Markets Authority (CMA) is looking into a number of builders at the moment, including Persimmon and Taylor Wimpey. The potential issue is collusion.

What they might find I don’t know. But following Lloyds shares this year (I’m not an owner) is enough to make me think the risk just isn’t worth it. 

Patience

Once the CMA investigation concludes, I’d certainly be willing to take another look at the house building industry. And the last month has been interesting from that perspective.

Aside from that big unknown, I think there’s a lot to like about the UK builders. So I’ll be watching closely over the next year or so for new developments. 

I’ve historically tended to think of Persimmon as a riskier bet than some of its peers for a few reasons. And while I’m open to changing that view, the last month has mostly reinforced it.

But there may be an even bigger investment opportunity that’s caught my eye:

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

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.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

2 FTSE 100 and FTSE 250 stocks to consider as stock markets plummet!

Looking for lifeboats as growth-crushing trade tariffs loom? Here are two (including a FTSE 100 gold stock) I think merit…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Watches of Switzerland shares 1 year ago is now worth…

Watches of Switzerland shares have been decimated by Trump’s tariffs on Switzerland. Dr James Fox explores whether this is an…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Growth stocks are crashing! Here’s what I’m doing now

Our writer shares his thoughts as growth stocks get crushed, as well as a favourite from the Nasdaq that he…

Read more »

Investing Articles

What’s going on with the Nvidia share price now?

The Nvidia share price is tanking. Once the most valuable listed company, Nvidia has seen more than $1trn wiped off…

Read more »

Investing Articles

This FTSE AIM stock has £2.3bn in net cash, and a market cap of £2.4bn!

I love this FTSE AIM stock, but it really hasn’t delivered for me yet. The stock trades with crazily low…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Down 15% in a week! Are these 5 FTSE 100 fallers screaming buys as markets plunge?

Five of Harvey Jones's favourite FTSE 100 stocks all have the same thing in common – they've fallen around 15%…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

2 stocks that have been crushed and now offer a ton of value

Edward Sheldon has been scanning the market for stocks that offer value after the sell-off. Here are two shares he…

Read more »