Shares in Purplebricks (LSE:PURP) have struggled mightily over the last 12 months. At the time of writing, the Purplebricks share price is 71% lower than it was 12 months ago. The dramatic fall in the company’s share price has caused investors to jump ship, concerned that Purplebricks might be vulnerable to a takeover.
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.Â
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.