Warning: The following share price chart might cause alarm for those of a nervous disposition…

Share price crash

The share price has crashed heavily, to as low as just 1.5p as I write. That’s a 99.7% loss from its peak. Eek!

The latest news makes the key issue clear. It’s all about cash.

On 9 May, Purplebricks told us its payment processor for ‘pay now’ instructions had “exercised its right to withhold a portion of remittances“. That’s due to the firm’s financial position.

The board has been looking for a buyout to try to get the best it could for shareholders. But it now says that if it can’t conclude its attempts to sell the company soon, its cash could come under more pressure.

Tough business

The level of instructions didn’t rise in the fourth quarter as had been hoped. The year to 30 April should still be in line with prior expectations, but that’s for another year of loss.

Estate agent comparison site GetAgent.co.uk is offering £300 cash back on estate agent fees to worried vendors who switch to a new agent. And that won’t help the Purplebricks mood.

These are the latest woes, and the reason the Purplebricks share price has plunged more than 75% so far in May alone. But how do they tie in with the past few years?

Long-term problems

Purplebricks struggled to turn its early potential into profits. And its flat fee approach didn’t help the bottom line when house prices were rising in the years before the current weakness.

Competitors charging by commission were cleaning up, and Purplebricks needed to raise its fees. But at the same time, it was still struggling to get the customers it needed to generate bottom-line profits.

From those early days of big TV ad spend, Purplebricks had to move to cutting costs and preserving cash. It did make a very small profit in 2021, but fell back to a big loss again in 2022.

Jam tomorrow

So Purplebricks wasn’t able to turn its potential into profits and cash quickly enough. And when growth start-ups can’t do that, the cash can run out and the bubble can burst.

I really don’t know what might happen next for Purplebricks. The board has mentioned a possible equity fundraise again, but thinks it lacks the needed support. So it’s still considering its options.

The stock has a market cap of only £5.4m now. Just about anything could affect the shares of a company that small, which is why I stick to market caps of £50m and above.

A lesson

I have no idea what Purplebricks shareholders should do now.

But I do see a lesson we can learn. When a ‘jam tomorrow’ growth stock is making the headlines, I want some idea of how much profit there might be in the future, and when it should arrive.

Without that, it can still be a profitable investment. But there can be a lot more risk.

The post Here’s what happened to the Purplebricks share price appeared first on The Motley Fool UK.

The UK real estate agent offers an industry-unique model. It provides instructions at fixed rates via its digital platform. Yet extensive operational costs and lack of consumer engagement have clearly driven investors away. 

The share price rebounded in mid-August (roughly 12%) when Chairman Paul Pindar purchased 1.5m shares. This pulled the stock’s market cap just above £50m. Yet the company’s performance remains fairly poor.

However, a plunging Purplebricks share price may be opportunity for me to grab shares at a bargain cost. Let’s take a look.  

Changing the model

Investing in property shares is a staple choice for long-term investors. The housing market has shown consistent returns over the last decade. But in the case of Purplebricks, its operational model raises concerns. 

The company has driven a transition of 600 employees to permanent positions through a £2.2m investment over the last few years. Management intended this shift to enhance its field force and increase instructions. However, instructions fell 31% to 40,141 in FY22. Gross profits followed, dropping to £42.1m from £57.7m in FY21. Indeed, Paul Pindar stated that the new model “has yet to deliver the expected improvement in performance”. 

This transition also led to a cash outflow from investing of £5.1m, compared to an inflow of £30.4m in the year previous. While this seems worrying, it actually results from Purplebricks’ sale of its Canadian business in FY21, creating £36.4m in cash. 

This means total cash for FY22 sits at £43.2m — enough to mitigate the financial consequences of the employee model transition. However, this investment is yet to produce intended results and the company’s gross profit has fallen an alarming 37%. This doesn’t lead me to have confidence in management’s capabilities. 

Fixed rates

A key aspect of the company’s model is its fixed rate offering. Most real estate businesses offer instructions on a commission basis. While this distinguishes Purplebricks within the industry, it hasn’t helped it.

The UK property market saw a rise in sales this year — driving companies’ commission profits upward. With a fixed fee model however, Purplebricks was left out of the party. Indeed, its market share decreased from 4.6% to 3.4%. 

In response, the company raised flat fee rates by 20%. This could potentially help the gross profit back bounce in FY23. However, this pricing increase arrives at a time when consumer engagement in Purplebricks has spiralled downwards. Higher prices definitely won’t help. 

But CEO Helena Marston has stated plans to remove £13m in costs during FY23. I think a 16% reduction in the operating cost base is the right move. Management has unsuccessfully attempted to accelerate operations. A conservative approach for the year ahead is necessary.

Purplebricks remains in a grave situation. While total cash has kept afloat through the disposal of the Canadian business, it may begin to sink. Huge change to its operating model  and continued fixed rates have failed to increase instructions. I think the Purplebricks share price is set to fall further. I won’t be adding this real estate agent to my portfolio any time soon.

The post Can the Purplebricks share price recover from a big plunge? appeared first on The Motley Fool UK.

Online estate agent

The share in question is digital estate agency Purplebricks (LSE: PURP). Over the past year, the Purplebricks share price has tumbled by 75%.

The business has faced significant challenges. Its old model of fixed fees led some customers to doubt the motivation of Purplebricks’ sales agents. More trouble came with compliance problems in the company’s letting division. An interim £6.8m profit last year had slipped to a £20.2m loss at the same point in the company’s latest financial year.

Positive signs

Could the fall present a buying opportunity for my portfolio?

I see positive signs in the business. It has changed its field sales agent structure and also moved to improve processes in its letting division. Both actions should help it move on from a difficult year.

Even with the price fall, already the price of this UK tech share has doubled from its 12-month lows.

Is the Purplebricks share price a bargain?

If the business improves, the current share price could still turn out to be a bargain.

Directors have been scooping up the shares. Last month, for example, the company’s chairman bought shares on the open market on three separate occasions. He was not the only director buying.

Although I think the Purplebricks share price could yet turn out to be an attractive one today, I also see challenges that might crop up. The business model has never produced the sorts of results I would hope for from an online estate agency. Although Purplebricks recorded a post-tax profit of £3.9m last year, that came on top of many years of losses – some of them substantial.

2019, for example, saw a post-tax loss of £54.9m. That is over two thirds of the current market capitalisation of £75.4m. So even if the business has indeed sorted out its most recent problems, I still have doubts about how attractive its underlying business model is.

On top of that, the recent problems have tarnished Purplebricks’ image in its marketplace. The number of instructions it received in the first half fell by 38%. The business model relies on critical mass – if buyers or renters can find far more properties by looking at a single competitor’s site, the motivation to use Purplebricks’ service falls. That in turn could lead to a vicious circle as buyers and landlords choose to list their properties elsewhere. Such a turn of events would further hurt revenues and profits for Purplebricks.

My next move on this UK tech share

Although I understand why it can look like a bargain, I am not so sure. Its business was not consistently profitable even before it ran into its most recent problems. Although it is working to move on from them, they may have hurt the business in the long term.

I reckon there may be big rewards if I add Purplebricks to my portfolio at the moment. But I feel there are large risks too. Turnaround situations with all their unpredictable moving parts do not match my style of investing. For those reasons, I will not be buying this UK tech share for my portfolio.

The post This UK tech share has crashed 75%. Should I buy? appeared first on The Motley Fool UK.

Royston Wild: SSE

The possibility of more extreme stock market volatility would encourage me to buy FTSE 100 stock SSE (LSE: SSE) for April. Soaring inflation in the UK means that many consumers may have to trim their spending. But light and heat are two of the last things people will want to cut down on, meaning profits at companies like SSE should remain rock solid. Utilities shares like this could become popular lifeboats for investors as macroeconomic and geopolitical fears increase.

I think SSE’s essential operations make it a great investment for investors seeking healthy passive income streams like me, too. Dividend yields here sit at a bulky 5.2% and 5.4% for the financial years to March 2022 and 2023 respectively.

Royston Wild does not own shares in SSE.

Stuart Blair: National Express

It finally seems that National Express (LSE: NEX) is overcoming the worst of the pandemic. In fact, in 2021, the coach operator managed to report an underlying operating profit of £87m, in comparison to a £50m loss in 2020. At the same time, free cash flow became positive, reaching over £120m. While the dividend has not yet returned, this is expected next year.

Risks include the rising costs, due to soaring prices of oil and wage inflation. But National Express has fully hedged oil through 2022 and 2023, which reduces its current exposure to the high prices. I’ll continue to buy this FTSE 250 stock for my portfolio.

Stuart Blair owns shares in National Express.

Stephen Wright: Endeavour Mining

My top stock for April is Endeavour Mining (LSE:EDV). The company owns and operates gold mines in West Africa. I like this stock because I think that the underlying business has some really attractive qualities.

With mining companies, I look for an ability to extract its product cheaply. Endeavour has one of the lowest costs of operations of any gold miner. The last time I checked, Endeavour’s cost per ounce was around $873. With the price of gold currently at $1,915 per ounce, I think that Endeavour is in a strong position.

Stephen Wright does not own shares in Endeavour Mining.

Zaven Boyrazian: Domino’s Pizza Group

With the pandemic loosening its grip on the world, Domino’s Pizza Group (LSE:DOM) has resumed its traditional double-digit growth in gross pizza sales. And now that the long-standing dispute with franchisees has finally been resolved, the group is primed to boost its total sales to as high as £1.9bn!

What’s more, the digitalisation of operations has simultaneously improved customer experience, as well as profitability. This does make the group more susceptible to cyber-attacks. But with the engine seemingly firing on all cylinders, Domino’s looks like it could be an excellent addition to my portfolio.

Zaven Boyrazian does not own shares in Domino’s Pizza Group.

Rupert Hargreaves: Intercontinental Hotels

My top stock for April is Intercontinental Hotels (LSE: IHG).

This is one of the best companies to play the global reopening trade, in my opinion. Analysts expect the group’s earnings to jump 60% this year and 25% in 2023. Based on these projections, the stock is dealing at an undemanding forward price-to-earnings (P/E) multiple of 20.

Of course, this growth is far from guaranteed. The pandemic is not over yet, and there could be further disruption on the cards for the global economy. Rising prices may also hit the firm’s bottom line.

Despite these risks, I would buy the stock today.

Rupert Hargreaves does not own shares in Intercontinental Hotels.

Christopher Ruane: JD Sports Fashion

With a simple business model, strong brand and large potential market, I continue to like the look of JD Sports (LSE:JD). But the shares have lost around a third of their value so far in 2022 and are down 15% in the past year at the time of writing.

That fall partly reflects concerns of reduced consumer spending hurting revenues and profits. But I think it gives me a buying opportunity in a well-run company with global ambitions. Its brand and retail expertise help set it apart from rivals.

Christopher Ruane owns shares in JD Sports.

Roland Head: HSBC Holdings

I think Asia-focused banking giant HSBC Holdings (LSE: HSBA) could benefit from rising interest rates and the easing of pandemic restrictions over the coming months.

The FTSE 100 bank’s underlying profits returned to 2019 levels last year. I think the changes being pushed through by CEO Noel Quinn should help to support more focused and profitable performance in the future.

The risk of a global slowdown is a concern, as are reports of further lockdowns in China. But I think HSBC shares continue to offer good value, trading below book value with a dividend yield of 4.2%.

Roland Head does not own shares in HSBC Holdings.

Andrew Mackie: Glencore

My top stock for April is Glencore (LSE: GLEN). Having recently hit a 10-year high on the back of soaring base metal prices, analysts have been rushing to upgrade their outlook for this leading commodities producer and marketer.

In its full-year results, it declared a combined dividend and share buyback amounting to $0.30 a share. At today’s price, that equates to an impressive dividend yield of 4.7%.

As institutional investors continue to rotate out of growth and into value stocks, together with many of the 60+ commodities that it produces playing a critical role in the energy transition, I expect to see its share price continue to rise not only this month, but well into this decade too.

Andrew Mackie owns shares in Glencore.

Paul Summers: Polar Capital Holdings

The share price of investment manager Polar Capital Holdings (LSE: POLR) has tumbled in value in 2022 so far, partly due to investors’ sudden aversion to high-growth tech stocks. I’m tempted to begin loading up.

The valuation of 10 times forecast earnings is certainly attractive. Throw in a monster dividend yield of 7% for FY23 (at the time of writing) and a strong balance sheet, and I can think of worse places to leave my capital.

Although a swift rebound in the shares is far from guaranteed, this is one ‘value’ stock I’d be happy to own.

Paul Summers has no position in Polar Capital Holdings

Andrew Woods: Rio Tinto

My stock pick for April is Rio Tinto (LSE:RIO). This is a mining company specialising in iron ore, copper, and aluminium. It operates in Australia, Guinea, and Brazil.

During the 2021 calendar year, pre-tax profit nearly doubled to $30bn. The firm then paid a record dividend of $10.40 per share.

As commodity prices remain high due to global events, I fully expect this trend to continue, with demand outweighing supply.

What’s more, many metals and minerals mined by the company may be used in decarbonisation efforts, with copper being a central component in electric vehicles.

Andrew Woods has no position in any of the shares mentioned.

Alan Oscroft: Purplebricks

Why would I buy into an estate agent whose share price has crashed over the past 12 months? Well, at the interim stage, Purplebricks (LSE: PURP) revealed a disappointing operating loss. But it reported only a very small underlying EBITDA loss.

Oh, and company insiders have bought up nearly a million shares between them in the past couple of weeks.

It’s obviously risky buying into a property business while inflation is soaring and interest rate rises are pushing up mortgage costs. But Purplebricks’ year ends in April, and I’m cautiously optimistic for decent results.

Alan Oscroft has no position in Purplebricks.

The post Top British stocks for April appeared first on The Motley Fool UK.

Recently, though the Purplebricks share price has turned itself around. Shares are up 15% today, taking the stock’s gains over the last week to around 50%. Furthermore, insiders at Purplebricks have been buying shares, indicating that the people that know the company best see reason for optimism.

All of this raises the question of whether the shares are attractive at these levels, or whether the recent jump in price is a trap. I believe it’s the latter.

Insider buying

Let’s start with the insider buying. When company insiders buy shares, it’s usually a positive sign. Executives at a company might sell shares for any number of reasons — they might think that the stock is overpriced, they might want to diversify their investment portfolios, or they might want to use the money for some personal reason. But when insiders at a company go out of their way to buy their own stock, this is usually an encouraging sign. 

In the case of Purplebricks, I think that the insider buying is a positive sign, but I think there are limits to how much positivity the activity justifies. Looking at the transactions more closely, the recent insider buys were made at prices between 15.75p and 18.19p. The Purplebricks share price is currently around 28p. So even if the insider buying indicates that the company’s shares were attractive before, it doesn’t necessarily indicate that they’re still attractive at current prices.

Revenues

I also have concerns about the underlying business. Purplebricks gives people who want to sell their houses the opportunity to bypass estate agent commissions in exchange for a flat fee. Obviously, how much a vendor stands to save depends on how much the commission would have been. That, in turn depends on prices. Over the last few years, UK house prices have gone higher and higher, I would have anticipated this being good for Purplebricks, since it I would have expected it to make their prices look very attractive by comparison. But this hasn’t happened.

Revenue at Purplebricks has come down consistently. Some of that can no doubt be attributed to the pandemic slowing the UK property market down. But Purplebricks hasn’t seen the kind of revenue recovery that other UK estate agents, such as Savills or Foxtons. This causes me to worry. The company appears to be struggling for reasons that I find difficult to see. And while I’ll be looking carefully at the insider activity if the share prices revisit their previous lows, I don’t think I’ll be trying to profit from the recent jump in Purplebricks shares.

The post Up 50% in a week, is the Purplebricks share price a trap? appeared first on The Motley Fool UK.

That’s why I’ve built a list of shares to consider buying before the 5 April deadline. Today, I’m looking at three of them.

Insiders buying

One is Purplebricks (LSE: PURP). The online estate agent has been through its early growth boom and bust, and we’re looking at a 75% share price fall over the past 12 months. But people inside and close to the company have been buying heavily, and it’s been picking up strongly over the past couple of weeks.

What might push the Purplebricks share price higher? For the first half this year, the company recorded a disappointing operating loss. But its adjusted EBITDA loss was only small, and I’m hoping it can be overturned in the second half. If Purplebricks can turn a profit in the full year, I could see investors buying back in.

What are the risks? The big one, surely, is getting into the property business right now. Inflation is climbing, with energy prices through the roof. And interest rates are rising, making mortgages more expensive. But Purplebricks is still an ISA deadline candidate for me.

Buy oil?

BP (LSE: BP) has been on a white knuckle ride of late, with the hydrocarbon business falling out of favour. BP slumped when it announced its net zero ambitions. But the war in Ukraine and the shunning of Russian oil has shown just how dependent we still are on the black stuff.

The soaring oil price has strengthened the BP share price. With Saudi Arabia set to open the taps and boost world supply, that seems likely to drop back a bit. For now though, oil seems to be holding at around $100.

If I buy BP shares before the ISA deadline, I think my biggest risk is short-term uncertainty. BP is currently being driven, at least in part, by sentiment. And where the share price will land once the energy market stabilises again is anyone’s guess.

But I can’t help seeing BP shares as oversold in the rush to get away from those nasty hydrocarbons.

High-tech risk

I like the idea of a high-risk growth punt from time to time, with just a small amount of cash. So as my final possible investment choice before the ISA deadline, I’m looking at Darktrace (LSE: DARK).

The downsides? Well, the cybersecurity specialist has not turned a full-year profit yet. And it has attracted criticism from several observers who reckon they’re seeing too much style and not enough substance. Darktrace sponsors Formula One, so I can see what they mean. I’m not entirely convinced that’s the best way for a startup to be spending its money.

But the first half this year did bring a profit. And that gave the Darktrace share price a modest but welcome boost. Valuation metrics don’t make much sense in a turnaround year. But if this marks the start of growing profits for Darktrace, I can see the shares starting to look undervalued.

The post 3 UK shares to buy before the ISA deadline appeared first on The Motley Fool UK.

Purplebricks shares have now almost doubled in price since 7 March, and it has come on the back of some hefty share purchases by people connected to the company. This comes days after we heard a JP Morgan fund had increased its holding.

On 15 March, the company revealed that senior independent non-executive director Simon Downing had bought a cool million shares at a price of 16.3p. That more than doubled his holding in the company, to 1,891,384 shares.

Following on from that, on 17 March, we heard that Sharon Pindar, who it said is a person associated with chairman Paul Pindar (his wife’s name is Sharon), had purchased 700,000 shares at prices between 15.75p and 18.19p.

Already in profit

With the Purplebricks share price standing at 26p, as I write, both of them are already in the money on those investments.

Should I follow them and buy some? I do think Purplebricks has a promising business model and a potentially profitable future. Its “no commission” angle was really just a marketing gimmick though. It’s an estate agent, getting its fees one way or another. And a slightly different charging structure is really nothing exciting.

Still, in the early days, investors piled in. And Purplebricks over-extended itself. Those two things combined to produce a classic growth stock bubble, which inevitably burst. But I’ve seen many occasions when a company in such circumstances picks things up and proceeds to generate long-term share price growth.

Purplebricks share price potential

Will the the Purplebricks share price do the same? Getting in when directors, or other insiders, make big investments can be a profitable strategy. But it’s not without its risks, and I’ve seen plenty of them get it wrong over the years. But what might make a difference at Purplebricks?

The first half, to October 2021, resulted in an £11m operating loss. That was particularly disappointing as the company had reported a £3.6m pre-tax profit in 2021, swinging from a £9.2m loss the year before.

Still, an adjusted EBITDA loss of £0.8m was modest. And with £58.3m cash on the books, there didn’t seem to be much liquidity risk.

Return to profit?

The current year ends in April. And if the company can swing back to significant profit levels, I could see the Purplebricks share price taking off. When will we get the results? We don’t know yet, but I’ll be watching for the notification.

What might a valuation look like? If Purplebricks can get back to its 2021 earnings of 1p per share, we’d be looking at a P/E of 26. That might be pushing it a bit. But an extra penny would cut the multiple in half, and that could be very attractive.

I do think there’s significant risk investing in an estate agent in the current environment of high inflation and rising interest rates. But I’m cautiously optimistic. Purplebricks is a possible buy for me.

The post Here’s why the Purplebricks share price sky-rocketed 25% today! appeared first on The Motley Fool UK.

Fallen star

The share in question is online estate agent Purplebricks (LSE: PURP).

In one way, it is surprising that the shares have fallen so far in the past few months. The UK property market is buoyant. Purplebricks has a well-known brand that should enable it to capitalise on that. Indeed, that remains part of the bull case for the shares.

So, why have the shares fared so poorly recently? Some clues are provided by the company’s interim results, released last month. Revenue, gross profit and cash on hand all fell. A profit in the same period last year fell almost 400% to become a £20m loss. That is around one third of the company’s total market capitalisation.

The company has gone through a painful period during which its business model has been found wanting. Not only did its property sales model cause problems for the firm’s finances, it also identified issues last year in its lettings business. Market confidence in Purplebricks has been shaken and I also think some customers have probably decided to go elsewhere. That could help explain the 7% revenue decline in the first half.

Chance for change

The company has been open about its problems and emphasises the steps it has already taken to address them. Indeed, it says that it has “significantly invested in and transformed its business model” over the past few months. Those changes include a different approach to what it offers customers, as well as how it manages staff. The company said that early signs suggest these changes are improving performance for the better.

If that turns out to be the case, maybe the greatly reduced Purplebricks share price offers a buying opportunity for my portfolio? But I notice that directors are not buying even at the reduced Purplebricks share price, with the last director purchase dating back to last April. That makes me question how much confidence they have in the turnaround story. 

Should I buy?

My main concern here is precisely the fact that Purplebricks has become a “turnaround” situation. With booming demand for homes, the past year ought to have been a great time for the company. Instead, management failures and misjudgements have hurt the business badly. We have seen management changes and a shift in strategy.

That could help Purplebricks recover. But generally I see turnaround situations as risky. Personnel changes and the possibility of reputational damage can permanently scar a company. Purplebricks had already recorded sizeable losses before 2020. The past year has not inspired confidence. I feel. So I will continue to watch Purplebricks to see how its new strategy works. But I will not be buying it for my portfolio.

The post Down 80%! Is this a UK share to buy now? appeared first on The Motley Fool UK.

What happened?

The online estate agency has revealed that it expects to make a provision of millions of pounds – potentially up to £9m – because it didn’t properly serve legally required documents to tenants explaining that their deposits had been put into a national protection scheme. Its failure to inform tenants within 30 days means they should be able to claim back up to three times the value of the deposit, up to six years after the event.

The Daily Telegraph reported on the blunder first, leading to a response from the company. The paper said the figure could theoretically be as high as £30m.

Overall, the debacle gives the impression of a company that’s cutting corners and doesn’t have the systems in place to do the basics that are legally required of it. No wonder the shares fell. Investors will be fretting about the immediate cost but also what it says about management’s competence. It also makes me wonder what other skeletons might be in the closet.

Is Purplebricks stock now a good buy?

But does the price fall means Purplebricks shares are cheap enough for me to buy? I don’t think so. This latest mistake was avoidable and follows on from an already poor share price performance. The shares are down more than 70% in the year to date.

A trading update in November warned that despite a strong period for the UK housing market in 2021, buoyed by the stamp duty holiday, the six months to 31 October 2021 were more challenging.

The online agency has more recently said the UK housing market is set to be closer to “normal” in 2022, following a “hectic” last 18 months. New business is slowing down already. 

This isn’t the only issue the firm faces. Hundreds of current and former Purplebricks agents are pursuing legal action against the company. They claim they’re entitled to benefits such as holiday pay, pensions and national insurance contributions. The company has moved from self-employed agents to employing staff directly. Similar moves at companies like Provident Financial have been bad news for shareholders as costs have risen.

Competition in online-only, or hybrid agency models is another issue for management and investors and one that’s no doubt having a negative impact on Purplebricks shares.

On the brighter side perhaps the shares are now poised well for a contrarian gamble? They detianly have fallen a lot. Purplebricks does also have strong brand awareness. 

Better options

I hold shares that are connected to the property market. The first is Property Franchise Group. It manages around 55,000 properties and is also involved in house sales. Between 2015 and 2020 its revenue went from £7.1m to £11m. It’s a high-growth share on an undemanding valuation. I also like — and own shares in — housebuilder Persimmon. It has best-in-class margins and a lot of cash on the balance sheet to pay the dividend and buy more land.

I much prefer to hold Property Franchise Group and Persimmon over Purplebricks shares – though both could fall if the property market slumps. I fully expect the latter’s share price to keep falling.

The post Here’s why Purplebricks shares fell 25% yesterday appeared first on The Motley Fool UK.

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?

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.

The post Is the crashing Purplebricks share price a buying opportunity? appeared first on The Motley Fool UK.