Persimmon (LSE: PSN) shares have come down a long way over the last 12 months. This time last year, they were trading above 2,800p. Today however, they’re near 1,250p.
Is this a great buying opportunity? Or are there better stocks to buy for my portfolio for 2023 and beyond? Let’s take a look.
A cheap stock
Right now, Persimmon shares do look cheap.
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With analysts expecting the housebuilder to generate earnings per share (EPS) of 144p in 2023, the forward-looking price-to-earnings (P/E) ratio here is just 8.6. That’s well below the average FTSE 100 P/E ratio.
Meanwhile, the dividend yield is high. At present, analysts expect Persimmon to reward shareholders with a payout of 114p per share for 2023. At today’s share price, that equates to a yield of a mighty 9.2%.
So, at first glance, the investment case looks quite compelling.
2023 will be challenging
The big question is whether these 2023 forecasts are reliable.
2023 is likely to be a very challenging year for the housebuilders due to the fact interest rates are now much higher than they were (impacting affordability) and many UK households are squeezed financially.
Indeed, analysts at BoA Global Research recently said that they expect 2023 to be the toughest year for the industry since the Global Financial Crisis (GFC) of 2008/09.
And cracks are already starting to appear. In November, Persimmon warned on its 2023 profit margins.
“Rising interest rates and broader economic uncertainty are clearly impacting mortgage lending and customer behaviour,” said the company in a trading update. “Our current expectation is for fewer legal completions than in 2022 and this together with a deterioration in average selling prices will have an impact on 2023 margins.”
So, the EPS forecast – which has been falling in recent months – could come down. If it did, the stock may not look so cheap.
It’s worth noting that analysts at UBS recently downgraded Persimmon from a ‘neutral’ rating to a ‘sell’, stating that the stock faces further downside risk as margins and returns decline. They expect profit margins to decline to 22% in 2023 versus 27% in 2022.
Is the dividend secure?
As for the big dividend, it’s not guaranteed. When economic conditions are challenging, housebuilders are usually some of the first companies to cut their dividends. We saw this during the GFC and also during Covid.
So, I wouldn’t rely on the dividend forecast here. It could be way off the mark.
My move now
Of course, with the UK is experiencing a chronic housing shortage, the longer-term outlook for Persimmon looks more promising. So buying the shares now could pay off in the long run.
However, in the short term, there’s a lot of uncertainty. Therefore, I’m going to leave the stock on my watchlist for now and look at other UK shares for 2023.
