The Motley Fool, the financial services company that provides investor advice, has published an article raising doubts about Purplebricks’ long-term profitability.
Investment writer Ian Pierce says in the latest article the he like Purplebricks’ business model, but is “less sure” about the company itself.
“My reticence is mainly drawn from the company’s valuation (which at £1.1 billion against £46.8m in sales for the half year to October appears very stretched) and its rapid expansion” he writes.
Pierce admits that with £64.4m in the bank as of October “cash burn isn’t critical yet” but he says with losses in the first half of the year running at £8.2m and costly expansion into the US and Australian markets “this will become a worry before too long.”
He also says that while Purplebricks is a “proven winner” in the UK, taking market share from rival agencies, success in its two overseas market is less certain and “if things become rocky in either of them, expect Purplebricks’ astronomical valuation to plummet back to Earth.”
Pierce concludes by saying that “with little to stop larger rivals from copying its business model if they become desperate enough, a very rich valuation and losses mounting, I’d have a hard time justifying purchasing shares of Purplebricks right now.”