Down 80%! Is this a UK share to buy now?

Many shares have seen price falls lately – but some more than others. One company has lost 80% of its value since April. Over the past year, the share price has tumbled 79%. Is this a UK share to buy now for my portfolio? Or should I pass over the opportunity?

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.