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The Persimmon (LSE:PSN) share price has underperformed the market over the past 12 months. That may surprise some investors who thought housebuilders really couldn’t get any cheaper.
However, after a sharp drop in share price and market capitalisation in 2022, the company has shown signs of stabilisation. So, where could Persimmon shares end the year?
Back to ground level
Persimmon’s market capitalisation has fallen dramatically from £9.1bn in 2021 to just £3.9bn in 2022. This reflected the impact of rising interest rates and building cost inflation. As I write, the company is worth around £4.3bn. The company’s enterprise value (EV) tells a similar story, rising from £3.02bn in 2022 to £4.1bn in 2025.
So, you’d think this makes the company cheaper… but it’s actually trading with higher earnings multiples than it was a few years ago. The price-to-earnings (P/E) ratio has normalised after spiking to 17.5 times in 2023 and now sits at 14 times for 2025. That’s not far off its long-term average.
Looking forward, earnings per share (EPS) are forecast to rise from £0.83 in 2024 to £0.95 in 2025, with further growth expected into 2026 and 2027. According to the forecasts, EPS could hit £1.30 by 2027. That suggests the stock is currently trading around 10.3 times 2027 earnings.
The dividend per share is also set to increase slightly, with a projected yield around 4.7% in 2025, and reaching 5.5% by 2027. This an attractive feature for income-focused investors. The payout ratio is expected to moderate, falling from over 70% to 65%, which could support sustainability if profits improve.
It also has a strong net cash position of £258.6m. This should provide operational flexibility.
Recovery could falter
Despite positive signals, risks remain. The UK housing market is sensitive to interest rates, and any further hikes could dampen demand for new homes. Construction costs, supply chain issues, and regulatory changes (such as planning reforms or environmental standards) could also pressure margins.
The company’s free cash flow yield, while improving, was negative in 2023 and remains modest at 2.8% for 2025. This could also limit flexibility for buybacks or special dividends. Definitely a few things to consider here.
The bottom line
The current analyst consensus is pretty bullish. The average target price is £15.42, representing a potential appreciation of 15% from the current position. However, the range is truly significant. The highest target is £23, while the lowest is £12.60.
This range reflects both optimism about a housing market rebound and caution over lingering risks. Personally, I’m cautiously optimistic. However, I do have broader concerns about future tax rises under a Labour government. In addition to the risks noted above, this could scupper a recovery.
So, where could the stock finish 2025? My hunch would be a small move toward the price target. But there’s a wealth of macroeconomic factors that could change that. All in all, it’s certainly a stock worth considering. Sadly, though, I’m going to watch its progress from a distance.
