Just before the pandemic and the stock market crash last year, house-builder Persimmon (LSE: PSN) saw its share price rise to almost £34.
Cut to a little over a year later, and this FTSE 100 stock is back with a bang. Its share price today is less than 4% short of its pre-crash highs. These were also its all-time-highs.
Notable trading update
The Persimmon share has been helped a bit today by its strong trading update. In a sea of higher-than-expected-earnings and robust trading updates, I think it would be a fair question to ask – what is the big deal about this one?
I mean, by now everyone who has been cued into FTSE 100 stocks knows that it is weak performance from last year that is driving robust growth now.
So here is what makes the Persimmon share unique now.
Its trading update definitely shows improvement from last year, with forward sales 23% higher for the period starting 1 January 2021 to date. This of course is partly because of a weak base.
But the company also provides a comparison to numbers in 2019, which was a normal year. Here too, it comes out ahead with an 11% increase in forward sales.
If this translates into improved revenues and earnings in its next results update, it tells me that the Persimmon share price could be well placed to move higher than its earlier all-time-high share price.
I also like its strong liquidity position. It holds cash of £950m and also has a £300m revolving cash facility with a five-year term. Coming out of a time when companies have struggled with cash as business came to a halt, this is a noteworthy positive until we go back to normal times.
The catch to the Persimmon share story
There is one catch here, though. Supportive policies have buoyed housing demand, the most notable of which is the continued relaxation in stamp duty. It is possible that when this is withdrawn, the housing market could slump again.
But there are balancing arguments too. It is now expected that the UK economy will boom after the pandemic. Some of this too, will be because of a base-effect. But there is also much pent-up consumer demand. This could drive growth beyond 2021.
Besides this, public spending in key economies like the US and China can have a non-trivial global effect on growth too.
House prices are expected to stay robust as a result, which is also good for the Persimmon share.
Would I buy the FTSE 100 stock?
The overall picture for the housing market, looks okay to me. In fact, I am hopeful that policy support has helped tide over what could have been an otherwise poor time for the housing market, for the foreseeable future.
This bodes well for Persimmon and other housebuilders. I would buy the Persimmon share now, in keeping with my earlier stance.
