- Purplebricks Group PLC (LON: PURP) might well be seen now as being only for speculators
- This is fine, of course it is, for speculation is as valid an activity as investment or even saving
- What we need to note about Purplebricks is that they are different from investment and or saving
Speculation is something of a dirty word but it has its place in both the wider economy and our own activities. What matters is that we know when we’re speculating, when we’re investing and even when we’re just saving. Getting confused over what we’re doing is unlikely to lead to optimal results after all.
At which point we should probably agree with the Telegraph’s Questor and think of Purplebricks as being, at this point, speculation: “In Questor’s view, buying shares in online-focused estate agent Purplebricks would amount to little more than speculation.” That little more indicates that they think there’s something wrong with speculation but as long as we acknowledge what we’re doing with Purplebricks it’s an entirely valid activity.
As we’ve mentioned about Purplebricks more than once there are problems in this business. Purplebricks faces an estate agency market that may well slow down for example. That stamp duty holiday doesn’t last forever, so turnover probably will decline. This is logically obvious, stamp duty is a tax on turnover after all, upon transactions. Such a slowdown on the market as a whole might not be entirely the best time to move the workforce over from commission-only sales folk to salaried employees, thus embedding the cost structure at a time of potentially falling revenues. There is also the point that a workforce hired on one payment structure might not be all that happy with being shuffled into another one.
But the bigger and more important short-term issue is the mess up in the rental arm. Quite how they managed to do this for some years is unknown, which is part of what the speculation is. Current law insists that when rental deposits go into a national scheme the renter must be given the paperwork that documents this. If they’re not then they can gain compo of three times that deposit. Purplebricks wasn’t going this and the company estimates this might cost £9 million in that compo. Other estimates vary, with one being as high as £30 million.
This isn’t all though, a corporally is that if the docs weren’t given to the tenants then any no-fault evictions since then are invalid – more compo might be owed. We’ve not got decent estimates of this possible cost as yet.
Which brings us to the full speculative position. In this short to medium term – before the effects of changes in workforce compensation and the course of the estate agency market make themselves known – the big question is what else has Purplebricks forgotten to do? Which other pieces of paperwork were left to die in the filing cabinets?
If it is just this tenancy deposit thing then perhaps the Purplebricks share price is undervalued. They have cash at hand to pay £9 million after all. If there’s some other set of things they forgot to tell people then perhaps Purplebricks is overvalued. Some mixture of this being all it is but the implications are greater than currently thought gives values inbetween.
Which is what the Purplebricks speculation is in this short to medium term. How badly did they mess up the paperwork and what’s the cost going to be? There’s nothing wrong with speculation, not at all, as long as everyone’s aware that it is speculation.
Should you invest in Purplebricks shares?
Purplebricks shares are traded on the London stock exchange's AIM market (the alternative investment market), which is the submarket specifically for smaller companies. AIM stocks are attractive to investors as they have tax advantages and smaller companies have the potential to benefit from rapid growth. But are PURP shares the best buy? Our stock market analysts regularly review the market and share their picks for high growth companies
