On August 8th the property world was shaken by Purplebricks. Their share price reached a peak at 525p, online agents moved from being a threat to a fact. Yet since then, it has fallen by almost 20%.
Investor website The Motley Fool has suggested that it could be time to put a cap on Purplebricks shares.
According to The Motley Fool, the cause of the fallen share price is the BBC Watchdog programme which criticised Purplebricks for repeating a savings claim which had been banned by the Advertising Standards Authority. The BBC radio programme You and Yours said customers had complained because they did not know that if they were deferring payment, they were entering into a credit agreement with merchant bank Close Brothers.
The Motley Fool also says that another reason for the decline was recent share sales made by senior management and the company’s founders.
It says: “Although there is no suggestion of insider trading, the timing of the trades seems noteworthy in light of growing concerns about the slowing property market.”
It continues: “What’s more, much of the upside potential also appears to be baked into the stock’s valuations. With the company making only £46.7m in revenue in the last financial year, its market capitalisation of almost £1.2bn means it is valued at a whopping price-to-sales ratio of 25. And despite this, the business has yet to turn a profit.”
The Motley Fool said that Rightmove could be a better pick for investors, saying: “Following last year’s impressive 18% uptick in its bottom line, City analysts expect underlying profits to rise by another 10% this year, with a further increase of 11% in 2018.”
“Valuations are more attractive too, with shares in Rightmove trading at a substantially lower price-to-sales ratio of 17. And given that the company has an operating profit margin of over 75%, shares trade at a more reasonable price-to-earnings ratio of 28.8.”
On Friday, Purplebricks shares finished the day slightly down at 435p, according to the London Stock Exchange.