Purplebricks shares nosedived by nearly eight percent yesterday, continuing a downward trend that has seen its shares drop from an all-time high of £5.13 each in July to £3.18 at close of business yesterday.
This represents a drop of 38%, knocking over half a billion off its market cap value which, at its peak, stood at £1.49 billion – although its share price remains way above the flotation price of £1 set back in January last year.
Purplebricks has faced several PR disasters recently starting in August when it was investigated firstly by the BBC TV’s Watchdog show and then the You & Yours radio programme over the way it does business.
Also, it has been investigated several times by the Advertising Standard Authority about both its website and TV advertising following complaints by agents and members of the public.
And it is still engaged in a stand-off with reviews website allAgents.co.uk, which has raised £32,235 via a crowd sourcing website to “stop Purplebricks from suppressing customer reviews on our website”.
But these problems don’t appear to be the key reason why the share price has dropped and instead some investors are becoming worried it’s a ‘bubble stock’.
Last week Hawksmoor Investment Management included Purplebricks in its ‘AbFab’ stocks list.
These are ‘star’ stocks that have returned explosive share price growth over a relatively short period and, along with Purplebricks, include fashion websites Asos and Boohoo and drinks firm Fever Tree.
A week ago Hawksmoor senior investment analyst Ian Woolley told website CityWire that the price to earnings ratio of these businesses was “sky high” and pointing out that Purplebricks, which is valued at nearly £1 billion at the moment, is “actually loss making”, he said.