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The Purplebricks share price has fallen 50% in one year. Time to buy?

It’s been a challenging year thus far for UK-focused shares. Fears surrounding the prospects for the economy have generally held back their performance, with investors becoming unsure about their prospects.

Online estate agency Purplebricks (LSE: PURP) has seen its share price decline by 50% in the last 12 months. A slowdown in the housing market has caused investors to become increasingly cautious despite the continued transition of the estate agency industry towards online.

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After such a major fall, could the stock post a successful recovery? If so, is it worth buying alongside another property-related stock which released a positive update on Wednesday?

Improving performance

The company in question is developer and constructor of multi occupancy property assets Watkin Jones (LSE: WJG). It released a trading update which stated that its performance in the year to 30 September 2018 has been slightly ahead of expectations. It has been able to make progress on forward sold student accommodation developments, with it completing all 10 schemes that were scheduled for delivery in the period.

Demand among institutional investors has been strong, while its performance in the build-to-rent sector has been impressive. It has signed agreements for major developments in Reading and Wembley, while it has a stable development pipeline over the medium term.

With Watkin Jones trading on a price-to-earnings (P/E) ratio of 12.7, it seems to me to offer good value for money. Given that the stock is due to post a rise in earnings of over 10% in the current financial year, it could offer capital growth potential – especially since the build-to-rent sector is forecast to grow significantly in the coming years.

Growth potential

As mentioned, it’s been a difficult period for Purplebricks. A lack of activity in the housing market seems to be causing investors to become increasingly cautious about the company’s prospects. Although it is expanded internationally, the UK remains a key market for the business, and Brexit could lead to further challenges in the near term if consumer confidence remains weak.

While there could be further falls in the company’s valuation, its long-term potential remains high. The estate agency industry is undergoing a period of significant change which is likely to see an increase in the popularity of lower-cost, online options among house-sellers. As people become increasingly comfortable with using digital opportunities for areas such as retailing and communication, it seems likely that they will be more open to listing their home online.

With Purplebricks having a strong position in the online estate agency arena, it seems to be well-placed to capitalise on a possible tailwind over the coming years. And with the business due to move into profitability next year, investor sentiment could pick up to some degree over the medium term. While still a volatile and risky share to own, I think its growth potential seems to be high despite its share price fall over the last year.

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Peter Stephens 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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