Breaking News
0

Is the Persimmon share price a bargain or should I buy this FTSE 250 turnaround stock?

Stock MarketsDec 04, 2018 12:15
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The Persimmon (LSE: LON:PSN) share price performance has continued to disappoint in recent months. It’s fallen by over a third in the last six months, showing little sign of mounting a successful comeback. Investors, it seems, are pricing in a difficult period for the house-building sector, with demand for new builds seemingly uncertain ahead of the critical phase of the Brexit process.

Of course, Persimmon is not the only share which has experienced a difficult period in recent months. Reporting on Tuesday was a FTSE 250 stock which has delivered significant falls of late. Could it offer better recovery potential than the house-builder?

Improving performance The stock in question is high-performance polymer solutions business Victrex (LSE: VCT). It released its preliminary results for 2018, showing a rise in revenue of 10% to £326m. Gross margin increased by 50 basis points, which helped to boost gross profit by 13% to £208m. The company’s improving financial performance was driven by core growth, as well as mega-programme progress. Its Industrial markets recorded strong growth, while Medical revenue increased by 3%.

The company expects continued momentum in its core polymer business in 2019. However, it anticipates that recent market softness in Automotive may hold back its ability to generate significant growth, while no expected volumes in Consumer Electronics may hold back its overall performance.

Looking ahead, Victrex is expected to post a rise in earnings of just 1% in the current financial year. Given that it trades on a price-to-earnings (P/E) ratio of 19.2, this suggests that it may be overvalued at the present time.

Recovery prospects Having fallen heavily in the last six months, Persimmon now has a P/E ratio of 6.8. This suggests the company is about to experience an extremely challenging period, with investors seemingly pricing in falling profitability.

However, the house-builder is expected to report a rise in net profit of 7% in the current year, followed by further growth of 3% next year. As a result, it could be the case that the stock market is overly-cautious about its financial outlook at a time when demand for new homes remains healthy.

Of course, political and economic risks are high at the present time. There could be further twists and turns over the coming months in terms of the Brexit process. However, the fundamentals for the housing market appear to be sound. High demand for new homes is being backed by low interest rates, high levels of employment and the Help-to-Buy scheme. Meanwhile, there’s a limited supply of homes which is unlikely to be addressed in either this parliament or the next one.

Clearly, further falls could be ahead for the Persimmon share price after what has been a tough period for its investors. In the long run though, this could prove to be a buying opportunity which delivers significant total returns for investors.

Peter Stephens owns shares of Persimmon. The Motley Fool UK has recommended Victrex. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Is the Persimmon share price a bargain or should I buy this FTSE 250 turnaround stock?
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email