Is Persimmon Plc (LON:PSN) Potentially Undervalued?

Today we're going to take a look at the well-established Persimmon Plc (LON:PSN). The company's stock saw a significant share price rise of over 20% in the past couple of months on the LSE. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today I will analyse the most recent data on Persimmon’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Persimmon

What is Persimmon worth?

Persimmon appears to be overvalued by 25% at the moment, based on my discounted cash flow valuation. The stock is currently priced at UK£32.10 on the market compared to my intrinsic value of £25.62. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity 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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Persimmon generate?

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. Persimmon's earnings over the next few years are expected to increase by 27%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? PSN’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe PSN should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on PSN for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for PSN, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Persimmon, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Persimmon you should be aware of.

If you are no longer interested in Persimmon, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. 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.
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