Persimmon (LSE: PSN) shares have been trending down recently. Currently, they’re close to their 52-week lows.
Is this a great buying opportunity for investors? Let’s take a look.
Why the shares have fallen
It’s not hard to see why shares in the housebuilder have tanked. With mortgage rates having risen significantly over the last year, houses aren’t as affordable as they were in the recent past. Add in the high level of economic uncertainty, and demand has fallen significantly.
This drop in demand is likely to have a major impact on Persimmon’s revenues and profits this year.
Currently, analysts expect the housebuilder to generate revenue and net profit of £2.3bn and £274m for 2023. That compares to figures of £3.8bn and £561m for 2022.
Dividends this year are likely to be much lower as well. Currently, the consensus dividend forecast for 2023 is 60.9p per share. That’s about 64% lower than the payout of 170p per share declared for 2022.
It’s worth noting that a payout of 60.9p still equates to a nice yield of around 5.9% though.
Is now the time to buy?
In light of all this, the big question is – are we near the bottom of the cycle? Or, put differently, are conditions in the housing market likely to get better from here or worse?
It seems analysts believe things are likely to get better from here. Currently, they expect Persimmon’s revenues and net profit to rise by around 12% and 17% next year.
However, personally, I’m not so sure. Last week, analysts at Schroders said they expect the Bank of England (BoE) to take interest rates to 6.5% by the end of 2023. That’s 30% higher than they are now (5%).
If the BoE was to increase rates to that level, it could put even more pressure on UK housebuilders in 2024 and delay any recovery for the industry.
How I’d play it
Given the uncertainty here, if I was looking to invest in Persimmon, I would wait for evidence of a rebound in revenues and profits before buying shares (I’d keep an eye on analysts’ forecasts, which are still heading lower).
I’d also wait for a rebound in the share price. Right now, the shares are locked in a nasty downtrend. This may continue in the near term.
I’d like to see a golden cross on the chart (where the 50-day moving average crosses above the 200-day moving average) before investing. This would indicate the shares are trending up again.
Waiting for these things could mean that I miss out on gains, of course.
However, at the same time, it would also reduce the chances of suffering big losses.
Ultimately, I’d rather miss out on some early gains than see the value of my investment fall and have to make much larger returns just to break even.
