Is Purplebricks’ Business Model Sustainable, Expert Asks

An expert investor says he believes Purplebricks’ share price could be ‘grossly overvalued’, and its financial performance could be being hampered by its business model.

Writing for the Motley Fool blog G.A. Chester says that Purplebricks’ share price hit a low in May but has recovered since, as investors welcomed its exit from Australia and the US. However, that while the company has ‘trumpeted’ an overall revenue growth and operating profit last year this somewhat conceals a slump in revenue and operating loss in H2.

Chester says he believes this cannot be entirely attributed to the current political and economic climate, saying: “I’m not convinced this is entirely down to the current economic and political uncertainty in the UK, because I’ve long questioned the sustainability of the company’s no-sale-still-pay business model.”

He adds: “The market is rating Purplebricks as a high growth stock. At a current share price of 120p, it’s valued at £368m, or four times revenue. This is a higher rating than Boohoo, for example, which is growing both revenues and profits at a rate of knots. As such, I see Purplebricks as overvalued, and possibly grossly so.”

While share prices are a concern for investors, Chester’s comments add to a number of property voices who believe that fixed fee, upfront pricing may not be viable in estate agency – even Purplebricks’ CEO Vic Darvey has suggested it may not always be appropriate. So, it will be interesting to see if Purplebricks’ need to deliver attractive future financials ultimately drive it towards making changes to its longstanding pricing model.

Source Motley Fool
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