Can Purplebricks rescue the share price and turn itself around?
Failed ventures overseas, a weakening UK housing market and a dire technical outlook do not bode well for Purplebricks and its shares.
Purplebricks abandons US and Australia ￼
It has been a tough year for Purplebricks. The firm has faced serious obstacles in its quest to expand overseas, and is encountering challenges in its home market in the UK as well. ￼
The firm has already withdrawn from Australia, and will now abandon its attempt to break into the US. Operations in Canada will remain unaffected, but the US division had required too much effort and financial investment to become viable. ￼
The UK arm continues to see revenue growth at 21%, and the firm overall saw 55% revenue growth to £136 million for the full year, but unfortunately pre-tax losses rose to £56 million, nearly double the previous year. The firm plans to plough more of its £62 million net cash into marketing and technology, in order to further its lead over competitors.
Housing downturn threatens to get worse ￼
In Australia, the firm was hit hard by a downturn in house prices. Revenue per instruction fell between 2018 and 2019, but the cost per instruction rose. If a similar event were to happen in the UK, then it would spell significant trouble for the firm. Even its cash position is much worse; a year ago it had £153 million to spend. Now that is down to £62 million, and will fall further once it has finished closing its US and Australian operations. ￼
Much of the firm’s success was down to rapid expansion. But the push overseas came too early, when the UK operation had yet to mature. Now Purplebricks is being forced back on its original division, at a time when the economic outlook appears to be darkening.
Purplebricks share price – technical analysis ￼
The decline of Purplebricks’ share price has been as swift and impressive as its ascent. Since peaking in August 2017, the share price has gone from £5 to, briefly, below 100p. Since mid-2018, the share price has carved out a string of lower highs and lower lows. The 50-day, 100-day and 200-day moving averages are all continuing to decline, and overbought readings in the stochastic indicator have proven to be excellent indications of potential selling opportunities. ￼
Since the beginning of May the price has found a floor above 90p, but rallies to 110p have run out of steam. A break above 110p would provide a more bullish view in the short-term, and then above 120p the price will have broken trendline resistance from the May 2018 high. Below 90p the 72p area is the next downside target, being the low from January 2016.
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