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1 Thing You Need To Know Before Buying Purplebricks Group plc, Zoopla Property Group plc or Rightmove plc

If you’re looking for high-growth shares, welcome to booming online property world!

Take Purplebricks (LSE: PURP), for example. Book your valuation visit online, and with a mobile app and a website you can do the business any time of day or night — and end up with your home advertised on Zoopla, Rightmove, and other property websites. It’s been a great investment so far too, with Purplebricks shares up 140% since a recent FTSE low point in late January, while the index itself has gained just 8.5%.

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And talking of Zoopla (LSE: ZPLA) and Rightmove (LSE: RMV), both of those have been doing pretty well too. Since January’s market dip, Zoopla shares are up 49% to 301p, while Rightmove shares are up 18% to 4,020p since their dip a little later in the first week of February. And over 12 months we’re looking at price rises of 33% for Zoopla and 25% for Rightmove.

But there’s one thing you really need to understand before you consider investing any of your hard-earned cash in any of these… fashionable high-flying growth shares can seriously hurt your pocket!

The problem is, people who pile into and out of the latest investing fads can be fickle sorts who are only looking at the short term. While impressive results roll in ahead of expectations they’re happy to jump on the bandwagon — but as soon as there’s one bit of news that’s less than sparkling, they’re off again and the price slumps.

Revenue soaring

We’ve seen a bit of that today, after Purplebricks released a year-end trading update. The company spoke of strong growth, with revenue expected to rise around 445% to £18.5m, and told us it’s on track to meet its full-year expectations. But in morning trading, sellers pushed the shares down 13% at one point. What’s wrong, isn’t meeting expectations good enough for them?

Part of the problem is that P/E ratios at such early stages can be weird and wacky, and it’s impossible to make much sense of them. Purplebricks shares are on a P/E of 53 for the year to April 2017, dropping only to 25 the following year as EPS is predicted to double — that’s a lot of growth already built into the price.

Zoopla shares are on a more modest forward P/E of 28 for this year, though that’s still around double the long-term FTSE 100 average, and Rightmove shares are rated a bit higher on a multiple of 30.

Steady nerves needed

Now, those could turn out to be attractive valuations over the long run, and earnings growth over the next few years really could be enough to justify today’s prices and allow for some nice profits for investors. I honestly don’t know. But one thing I’m pretty confident of is that the ride is likely to be a volatile one.

I always think of online fashion pioneer ASOS when I look at new rising stars. If you’d bought ASOS shares at the end of 2009 and kept your nerve, you’d be sitting on a profit of 680% today. But you’d have had a white-knuckle ride, as fortunes have been made and lost several times along the way. And if you’d taken a short-term bandwagon approach, you could have lost a lot of money — ASOS shares are still down around 50% from their early 2014 peak.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Rightmove. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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