Persimmon (LSE: PSN) shares have had a torrid time lately. Yet this could actually make the housebuilder one of the most compelling opportunities on the FTSE 100. Should investors snap it up?
Over the last year, the Persimmon share price plunged 24%. Over five years, it’s down a brutal 65%. If an investor had put £7,775 in Persimmon shares on 1 May 2021, they’d have picked up 248 shares at 3,132p each. Today, those shares are worth just 1,057p each, a meagre £2,621 in total. Our investor would be sitting on a paper loss of £5,154. However, new investors could potentially turn that nightmare to their advantage.
In practice, they wouldn’t have lost that much, as they’d have received dividends along the way. The board cut the dividend per share from 234p to 60p in 2022, and it’s been frozen at that level ever since. But our investor would have got about £1,100 worth of dividends, at a rough guess. If they’d reinvested them, they’d have picked up more stock at the lower price.
Is this FTSE 100 stock too exciting to ignore?
Persimmon isn’t the only housebuilder suffering today. They’re all struggling. Shares in the UK’s biggest builder of all, Barratt Redrow, are down 47% over one year, and 67% over five.
When the market cycle turns against a sector, there isn’t much companies can do about it. But there’s one thing investors can do, if they’re up for the challenge. And that’s take a position towards the bottom of the cycle, when the shares are cheap and the yield higher, then grit their teeth and wait for events to turn back in their favour. Do we have such an opportunity today with Persimmon? I think we might have.
Yesterday’s (30 April) trading update was way better than I’d have imagined. Average weekly net private sales rate rose 3% over the first four months of the year, while the order book climbed 5% to £2.5bn. Private average selling prices edged up 5% to £306,900. The board also confirmed full-year guidance, with underlying pre-tax profits up 4% to £462m.
It’s cheap, and just look at that yield
Now let’s assume the board holds the dividend at 60p in 2026 too. If it does, that’s a forward yield of 5.7%. Which is hugely tempting but of course there are risks. Yesterday, the Bank of England warned inflation could go as high as 6% if the Iran conflict drags on, while analysts are pricing in anything between three and six interest rates hikes. That could hit housebuyer demand, prices and revenues. Investors who buy today could be in for an anxious wait before Persimmon recovers. Yet the risks look priced in. Persimmon’s forward price-to-book ratio is now just 0.86. That’s well below its 10-year average of 1.83.
When beaten-down shares recover, they often do it quickly. So it can pay to get in early. It certainly takes a brave investor to buy Persimmon today, but I still think it’s worth considering with a long-term view.
