It has been a challenging year for shareholders of Persimmon (LSE: PSN). The housebuilder has fallen dramatically in value. The slide in the price of Persimmon shares over the course of 2022 can be seen in this chart.
But what comes next? If in 2023 the shares can recover even part of the value they lost this year, buying them now for my portfolio could be a lucrative move. Should I do that?
Hard times ahead
Persimmon’s business has held up fairly well this year -– but management expects next year to be tougher. It expects fewer legal completions on houses, which effectively means lower sales volume. It also expects average selling prices to slide. That could hurt profit margins as well as overall profit levels.
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I think the reason Persimmon shares have performed so poorly this year is because the market has been expecting the housing market to get worse, damaging profits at homebuilders. There has also been concern about the sustainability of the dividend. The firm has now made it clear that next year’s dividend is unlikely to match the current one.
But if that bad news is already priced into the shares – and I think arguably it is – does that mean they now present a potential bargain for me as a long-term investor?
Ongoing uncertainty
Maybe. But maybe not.
If the housing market faces a downturn that turns out to be fairly mild and short-lived, I think the current Persimmon share price could offer me a bargain. The company is consistently profitable. Its business model has historically produced attractive profit margins.
Then again, things might look different if the housing market enters a full-blown crash. Limited supply could help prop up demand. But ultimately, if enough potential buyers cannot finance purchases, prices will likely fall sharply. In that case, despite Persimmon’s attractive profit margins and well-known brand, its sales and profits could plummet along with those of rivals.
If that comes to pass, buying the shares today could mean I end up seeing them lose value next year and perhaps beyond.
I’m not buying the shares
The thing is, I am unable to judge how deep or long the housing market fall may be. That makes it difficult if not impossible to value the shares right now.
So for that reason I have no plans to buy them just yet. But I will continue to keep an eye on what happens to house prices and sales volumes.
With its business model and attractive dividend I continue to find the stock attractive. But I do not want to overpay. Just because a share has fallen does not mean it cannot fall further. Persimmon shares may recover in 2023 – but they could lose even more value. So for now, I will watch and wait.
