Persimmon’s stock price plummeted. Is this an investment opportunity?

of persimmon (LSE: PSN) stocks have taken a big hit over the past 12 months. A year ago, the British housebuilder’s shares were trading near his 2,300 pence. However, now he can be bought for less than 1,300 pence.

Is this a great investment opportunity? Or is Persimmon stock a risky bet from here?

Long term opportunity?

there are few industries like periodic as building a house. This is an industry that experiences booms and busts fairly regularly. And now we are in a very bankruptcy stage.

This was shown when Persimmon announced its full-year results earlier this month. The housebuilder not only advised that the outlook for 2023 was so uncertain that it could not provide a full-year earnings forecast. It also cut its dividend by a whopping 75%. Rising interest rates, economic uncertainty and rising costs appear to be hitting the UK housing market hard.

for those who have now long term Given the potential for investment, there could be an opportunity here. At some stage, conditions in the housing market may improve. It’s worth pointing out that Persimmon believes the fundamentals remain to support demand for new homes.strong”.

However, we do not expect a V-shaped recovery in stock prices here. I think the way back can be slow and long.

slow rebuild

2023 is expected to be a difficult year for UK home builders. Persimmon’s recent full-year results said his current forward sales position was £1.52 billion, down from £2.21 billion a year earlier. This equates to a reduction of over 30% for him. As such, sales are likely to drop significantly this year.

The sales rate over the past five months means that this year’s completion rate will drop significantly, resulting in lower margins and profits.

Persimmon CEO Dean Finch

Worryingly, Citi analysts do not believe the company will return to pre-pandemic sales levels for at least the next four years, according to Refinitiv forecasts.

During previous industry downturns, governments often bailed out with schemes like Help to Buy (which helped first-time buyers with mortgages). However, there seems to be no such support this time. Instead, the government has actually introduced his new 4% tax on the profits of home builders to generate income for improving dangerous cladding. This is not ideal.

Adding further uncertainty here is a recent study into this area by the UK’s Competition and Markets Authority (CMA). The concern is that home builders aren’t providing the housing people need in a large enough or fast enough manner. If the regulator finds any competition or consumer protection concerns, it says it stands ready to take the necessary steps to address them.

Overall, the outlook for Persimmon (and other UK housebuilders) looks very bleak in the medium term. It’s worth pointing out that a Peel Hunt analyst downgraded his Persimmon stock from ‘hold’ to ‘price cut’ on the back of the outlook.

my view

Given the high degree of uncertainty here, I believe persimmon stocks are best avoided for now. They may rebound at some stage. But all things considered, I think there are far better (and safer) stocks for investors to buy today.