Online estate agency Purplebricks Group (LSE: PURP) was once viewed as one of the hottest growth tickets in town, but 2018 has proved to be a potentially-defining year for the company for all the wrong reasons.
Its share price has fallen a whopping 62% in the year to date, and it’s now trading at its cheapest for two years. I can see plenty of reason to expect Purplebricks’s descent to extend well into 2019 too.
UK homes market to worsen?
For one thing, the Brexit-related turmoil that’s whacking the UK property market looks set to run until well into the first quarter of 2019 and possibly beyond.
Prime minister Theresa May’s so-called meaningful vote on her deal with the European Union has been kicked into the long grass and, as I type, no advice on the timing of a rescheduled vote has been given by Number 10 except that it will be held some time before January 21.
Will May still be in power by then, or even by the end of this week? Does it make the chances of a no-deal Brexit more likely?
The uncertainty that is crushing homebuyer activity in the UK looks set to linger for some time yet, threatening to push Purplebricks’ share price further south. And if the worst-case-scenario, withdrawal without a deal, occurs then the property market could be in the doldrums for many years, the Bank of England suggesting that property prices could tank by more than a third under such a scenario.
Whilst a concern for Purplebricks investors in 2018, this has not been the main source of angst for them. Indeed, its solid trading update of a month ago has relieved some of the tension surrounding the company’s British marketplace in the coming year.
What’s been more of a worry is that the small-cap’s international expansion programme may fall well short of expectations. And as my Foolish colleague Graham Chester pointed out recently, that market statement I just mentioned shed no further light on the progress of its foreign divisions. Interims which are scheduled for later this week (Thursday the 13th, in fact) will therefore make for interesting reading.
Concerns that Purplebricks is running before it can walk and expanding much too quickly are nothing new, yet the Solihull-based business has continued to thumb its nose at those critics. Indeed, in October it entered into a joint venture to acquire a stake in German digital estate agent Homeday, which followed shortly after the acquisition of Canadian operator DuProprio for almost £30m earlier this year.
City analysts aren’t expecting Purplebricks to break into profit until the next fiscal year, the 12 months to April 2020, at the earliest. It’s yet to prove that it can replicate its success in the UK in its other territories of the US and Australia, so why is it still spending like it’s going out of fashion?
Despite the 2018 share price slide, the estate agent still trades on a huge P/E ratio of 72.4 times for fiscal 2020. This leaves plenty of scope for additional weakness in the months ahead, and for this reason I believe it should be avoided.
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Royston Wild 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.