The Persimmon (LSE: PSN) share price was firmly on the front foot on Wednesday (10 January) as the company released its latest update on trading.
Having made it through a troublesome 2023, I reckon this stock’s recovery is only just getting started.
A tough 2023
Admittedly, the trading statement was a mixed bag.
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Although coming in better than previously expected, new home completions tumbled by a third last year as interest rate hikes and the cost-of-living crisis impacted demand.
Despite taking steps to cut costs and preserve its coffers — such as reducing the dividend — Persimmon also finished the year with £420m in cash. That’s less than half what it had in the previous year.
Some of the figures were more encouraging. Forward sales of £1.06bn were slightly higher than in 2022, helping to explain why the market appears to have embraced today’s report from CEO Dean Finch and co.
In fact, today’s uplift rounds off what has been a pretty positive start to 2024 for Persimmon shares.
Have I spoken too soon?
Since markets reopened on 2 January, we’ve witnessed a gain of just over 3%. That’s far better than the performance of the UK’s main indexes — the FTSE 100 and the FTSE 250.
This is good to see. As well as being a part-owner of the company, the £4.6bn cap is my pick for the best British share to own this year.
Now, I need to be aware of potential bias here. It’s only natural that I want something to do well if I’ve bought and backed it.
And there are reasons for thinking that recent momentum will prove temporary.
Yes, interest rate cuts are expected as inflation continues to fall. But there’s no guarantee these will come as soon as the market hopes. They could also be more gradual than predicted.
This might frustrate more impatient holders who may decide to sell up and move on.
Green shoots
On a more positive note, Persimmon — like many of its peers — is still in decent financial shape and holds a large and valuable land bank.
And while a sustained rise in the share price since the end of October does mean that the shares now look pretty expensive relative to projected earnings, I wouldn’t rule out analysts needing to redo their sums later in the year.
A better-than-expected outlook statement when full-year results are confirmed in March could suddenly make the valuation look more reasonable, especially if a (small) rate cut follows soon afterward.
Can shares keep climbing after a 50% jump in only a few months? There’s no rule against it.
Stand fast
Regardless of what does happen, I can comfort myself knowing that I should still receive some passive income.
Despite the aforementioned cut, Persimmon offers a forecast dividend yield of 4.4%. That’s more than I’d get from holding a fund that simply tracked the market return.
Ultimately, today’s update has done nothing to shake my belief that this housebuilder will get through this sticky patch relatively unscathed.
The snag is that this could still take time and possibly longer than the market currently anticipates.
As a Fool focused on the long term, that suits me just fine.
