Shares of online estate agent Purplebricks might be on the road to recovery, but this is failing to win over analysts and commentators.
Popular investor site The Motley Fool has recommended selling the stock, primarily because of its valuation.
The shares currently trade on 14.5 times sales and a huge 247 times 2018/19 forecast earnings.
Property portal Rightmove also trades on about 15 times sales, but it has an operating profit margin of more than 70%. Purplebricks’ operating margin in the UK was 8% during the first half of its current financial year. Overall, it made a loss.
The Motley Fool also points out that the costs of rolling out Purplebricks’ business model are considerable. Administrative costs in the UK rose by 144% during the first half of last year, even though sales only rose by 118%.
“I don’t think that it will ever enjoy the kind of profit margins achieved by Rightmove. In my view, the group’s current valuation leaves little room for further gains and means that shareholders have no protection against any kind of disappointment,” an article on the site states.
The only part of the group’s business that is operating profitably at the moment is its UK division, in which sales rose by 118% to £39.9 million during the first half of the group’s current financial year, lifting the division to an operating profit of £3.2 million.
The company’s other operating divisions, the US and Australia, are still operating at a loss but they are in the early stages of development.
A separate article on the investor site argues that Purplebricks is “a company with plenty of promise but little else”.
Its bottom line is expected to remain underwater with losses of 5.9p per share in the year to April, according to City analysts, but then achieve earnings of 1.7p in 2019.
Purplebricks recently revealed it received 6,160 instructions in January – up by around two-thirds from the same month in 2016, with its online market share improving to 77%. However, recent housing market data revealing a steady downturn in homebuyer appetite could see the amount of business it can drum up begin to fall in the months ahead, the article states.
Meanwhile, analysts at Swiss banking giant UBS have warned Purplebricks’ growth is stalling and it is being caught up by rival YOPA.
UBS’ note cuts the likely final market share in the UK from 15% to 12%. It also reiterated its advice that investors should sell their shares in the company.
As well as highlighting slowing growth, the bank says its subject to contact market share has been flatlining since September last year at approximately 5%.
“Given the importance of the spring market, we believe that this level of progress will be below management’s expectations, and will raise questions around the potential market share Purplebricks is able to achieve,” UBS said.
Savills-backed YOPA is beginning to catch up with Purplebricks and now has 0.5% of the market.
“Whilst [YOPA’s market share] is still small relative to Purplebricks, YOPA’s strong funding position to support further advertising campaigns means this brand represents a threat,” UBS added.
It comes after a note by Jefferies questioned Purplebricks’ sales figures, resulting in a huge slump in the estate agent’s share price.
DealMakerz thinks Purplebricks is probably overvalued, but its high and aggressive growth trajectory is obvious.
The question remains as to which other online agents will choose to go public – and at what valuation?
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