Purplebricks (LSE: PURP) has fallen a long way from its peaks of a few years ago. Even over the past 12 months, it’s down 72%, hit by a profit warning in November 2021. But on Friday, the Purplebricks share price soared 25% in morning trading. So what’s happening?
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.