Is FTSE 100 housebuilder Persimmon (LON:PSN) still cheap?

Housebuilder Persimmon (LON:PSN)has been a standout stock market performer over the past few years, as has the housebuilding sector in general. The group's shares have staged a remarkable comeback since the 2008 financial crash, propelled higher by market demand, government initiatives, and substantial dividends. 

Recently, however, if we look at Persimmon's share price chart, momentum has stalled.

Stacks of academic research covering different time frames and regions of the world all come to the same conclusion: over time and on average, cheap stocks outperform expensive stocks. The evidence is so compelling that value is one of Stockopedia's three main factors in investment returns.

But, this far into the economic cycle, is Persimmon really cheap? Housebuilders are notoriously cyclical, after all.

One way to quickly gain a few insights is to consult the group's Value Rank, which combines the following valuation ratios into a single number:

• Price to Book Value
• Price to Earnings
• Price to Free Cash Flow
• Dividend Yield %
• Price to Sales
• Earnings Yield %

The Value Rank: how does Persimmon stack up?

We can see by using Persimmon’s StockReport that the group has a:

• Rolling price to book value of 2.32,
• Rolling price to earnings ratio of 8.25
• Trailing twelve-month price to free cash flow of 11.6
• Rolling dividend yield of 10.1%
• Trailing twelve-month price to sales ratio of 1.98

When we add all of these together, we find that Persimmon has a Value Rank of 80. Investing in high-value stocks requires finesse and a sturdy constitution but, when cheap stocks come good, the payoff can be large and sudden.

Persimmon’s Value Rank of 80 puts it in the cheapest quartile of the stock market. That is certainly a promising jumping off point for our analysis but it is not the whole story.

A smarter way to invest in value stocks is to find the best quality value stocks or value stocks whose share prices are turning around - history shows that you can do much better than a passive investor by combining factors, so it makes sense to consider Persimmon’s Value Rank alongside its Momentum and Quality Ranks. You can see these Ranks on the group's StockReport page.

What does this mean for potential investors?

Some of the best quality stocks in the market have defensible models that can deliver high levels of shareholder returns over the long term. But there are no guarantees and it's important to do your own research. Indeed, we've identified some areas of concern with Persimmon that you can find out about here.