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.