Persimmon Plc (LON:PSN), is not the largest company out there, but it saw significant share price movement during recent months on the LSE, rising to highs of UK£22.54 and falling to the lows of UK£14.85. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Persimmon's current trading price of UK£14.85 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Persimmon’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Persimmon
What's The Opportunity In Persimmon?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 6.44x is currently trading slightly below its industry peers’ ratio of 8.46x, which means if you buy Persimmon today, you’d be paying a reasonable price for it. And if you believe Persimmon should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Persimmon’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Persimmon look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with a negative profit growth of -0.5% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Persimmon. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? Currently, PSN appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on PSN, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on PSN for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on PSN should the price fluctuate below the industry PE ratio.
Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 3 warning signs for Persimmon you should know about.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
About LSE:PSN
Flawless balance sheet and undervalued.
