The Motley Fool

Here’s a property stock I reckon could smash the Purplebricks share price

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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

There’s one behavioural pattern that seems to play out time and time again, and I thought I saw it happening when I wrote about Purplebricks (LSE: PURP) back in March.

People were seeing the shares rising rapidly and, not wanting to miss out, piling in without really understanding the company’s valuation.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

That, in turn, was pushing the share price up further, and it can carry on like that for some time. But common sense eventually sets in, the fad passes, and the share price descends towards a rational long-term valuation.

Price slide

Since I voiced my fears that it was happening to Purplebricks, the shares have fallen a further 27%. So how do you avoid jumping on, and falling off, bandwagons? I’d start by ignoring the marketing hype.

I don’t want to see big ad campaigns like the Purplebricks one. I want to see where a company’s profit is going to come from. And I want to have some way of relating the share price to that profit.

Competition

The property business is a very competitive one, and every company in it is getting paid one way or another, through commissions, fees, whatever. And I don’t see the “no commission” angle as a game-changer at all — folks selling their homes are going to weigh up the total costs of the alternatives.

Purplebricks is investing huge sums in an attempt at rapid international expansion, but a lot of investors are increasingly seeing it as too far, too fast, before it’s even come close to profitability in its home market.

While Purplebricks is certainly at the sharp end of the online estate agent business, it’s still tiny compared to the traditional market. And first movers are rarely the ones who reap the big profits.

Young upstart

Newcomer OnTheMarket (LSE: OTMP) has had a fiery start to life as a listed company, with its shares gyrating between 102p and 185p since flotation in June. As I write, we’re looking at a price of 141p, for an overall loss of 5%.

On Tuesday, the AIM-listed property portal announced a new deal with Belvoir Lettings. Belvoir is described as “the UK’s largest property franchise” and is set to list all of its residential sales and rental properties at OnTheMarket.com.

The tie-up will extend to shared marketing too, with Belvoir also set to “actively promote the portal brand with digital and branch-based marketing activity.” I don’t know much about marketing, but that sounds more cost effective to me than paying big money for people to shove their faces in cakes on primetime TV.

Both CEOs were, naturally, saying really nice things about each other’s companies, but I do see it as a pretty good move for both.

Would I buy OnTheMarket shares myself? Right now, no. But that’s simply because there are no profits on the horizon yet.

Profit watch

At the interim stage there was £24.3m in cash on the books, but forecasts suggest a pre-tax loss of £26.4m for this year and next, combined. I think OnTheMarket could do very well, but while there’s a likelihood of more funding being needed, I have no way of working out a fair valuation for the shares. I’m watching.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Alan Oscroft 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.