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Is the crashing Purplebricks share price a buying opportunity?

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Models of houses on top of pound coins
Image source: Getty Images.

Yesterday, the technology-driven real-estate agent Purplebricks (LSE:PURP) watched its share price plummet by nearly 40%. Management had just issued a trading statement, which wasn’t well-received.

This triggered a sharp fall and has pushed the group’s 12-month return to a disappointing -45%. So why are investors running for the hills? And is this actually a buying opportunity for my portfolio?

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A slowing housing market

When the pandemic struck the UK, the government temporarily lifted the stamp duty tax on home purchases to keep affordability levels elevated. This decision has been incredibly beneficial for real-estate businesses like Purplebricks, who profited from a drastic increase in property sales.

Unfortunately, this has created a bit of a supply problem. According to property portal Rightmove, there are 23% fewer sellers bringing their homes to the market. Combining this with stamp duty now being back in play and interest rates expected to rise has slowed the property sector’s growth.

Purplebricks is suffering from this slowdown first-hand. And management has estimated that only around 22,000 properties will be moved by the business. By comparison, this figure came in at 35,387 just a year ago.

Consequently, the firm is now predicting that underlying earnings for the full year will be below initially issued targets. And since the catalyst behind this market slowdown is ultimately out of management’s control, seeing the Purplebricks share price crash on this news is hardly surprising. It also doesn’t help that CEO Vic Darvey admitted part of the reason behind the company’s underperformance is linked to self-inflicted short-term operational disruption.

Can the Purplebricks share price bounce back?

As frustrating as seeing a slowing level of growth can be, there are some reasons to be optimistic over the long term. Firstly, the company has recently completed an operational overhaul that has made the business a bit more vertically integrated. The sales team has been brought in-house, and a new simplified pricing structure is now in effect.

It’s too soon to judge the success of management’s decisions. But if they turn out to be prudent, Purplebricks will have an increased level of control over sales. At the same time, margins may potentially improve which, in turn, is good news for the share price.

Time to buy?

After yesterday’s decline, the company now trades at a market capitalisation of around £160m, close to its lowest point over the last 52 weeks. The market may have overreacted to this news, leading to Purplebricks’ share price being undervalued. However, personally, I’m not tempted to add any shares, even at the reduced price.

As I previously stated, the problems the business is facing aren’t something within its control. In my experience, that’s not a good trait for any firm to have. So I’ll be keeping Purplebricks on my watchlist for now.

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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