If I decide not to buy a UK stock, I try not to brood on it. There’s always the risk it will rocket, and I’ll end up kicking myself. Or worse, I’ll try to play catch-up and buy just as gravity asserts itself. Much better to move on. Even the best stock-picker can’t be right every time. Near misses are part of the process.
Having said that, it’s great fun to look at a stock I didn’t buy and discover that I dodged a bullet. I get to breathe a sigh of relief and quietly pat myself on the back for my amazing predictive skills. That’s exactly what happened with housebuilder Persimmon (LSE: PSN). I came close to buying it five years ago, seduced by a double-digit dividend. I knew ultra-high yields often signal trouble, but almost took the plunge anyway.
The shares have slumped badly
That was close. The Persimmon share price has plunged 55% over five years and the decline continues, with another 10% drop in the last 12 months.
The housebuilding sector held up during the pandemic thanks to the stamp duty holiday, but the cost-of-living crisis and rising interest rates brought it back down to earth. The closure of the Help to Buy scheme in October 2022, which had helped young buyers purchase new-builds, also removed a taxpayer-backed prop.
Two years ago, I felt the sell-off had gone far enough. I bought a housebuilder, although instead of Persimmon I snapped up Taylor Wimpey, which had a sky-high yield of around 8% at the time. My predictive skills weren’t so hot here as Taylor Wimpey’s share price has fallen 25% in a year. I’m not too worried. I still think the sector recovery will come.
The Bank of England didn’t cut interest rates on Thursday (6 November) but markets now reckon there’s an 80% chance of a cut at the next meeting on 18 December, with more to follow in 2026. That should help, by reducing mortgage rates and boosting sentiment.
House prices are climbing. Halifax figures show the average property price rose 0.2% in October, the fourth consecutive monthly climb, and 3.9% year-on-year to a record £293,999. This should support margins
FTSE 100 recovery opportunity
Persimmon now looks decent value with a price-to-earnings ratio of just over 13, below the FTSE 100 average of 18. The trailing dividend yield is a solid 5.05%.
In August, we learned that half-year revenues rose 12% to £1.31bn despite ongoing challenges with cladding provisions and an investigation into price collusion. Investors might consider buying given today’s lower price, but risks remain. Interest rate cuts may be delayed, economic growth may slow, young buyers may struggle in a tricky jobs market.
Looking forward
The housebuilding sector has had a tough decade, and it isn’t over yet. However, I think Persimmon shares are well worth considering today, but only if investors take a long-term view. Short-term volatility will persist, but with rising house prices, potential interest rate cuts and an attractive dividend yield, the stock could reward patient investors over the next five years. It surely can’t do worse than the last five. Can it?
