Purple Group was flying high on the back of EasyEquities’ success during the lockdown, but its share price plummeted over the last year and now trades at lower levels than 20 years ago.
Purple Group’s financial results for the six months ended 28 February 2023, released last month, explained why investors have lost their appetite for the stock.
The financial results showed that Purple Group, and EasyEquities, are struggling to maintain growth and contain expenses.
The standout figure was the net loss of R10.6 million over the reporting period, a huge negative swing from the previous net profit of R17.7 million.
It signalled a 158% deterioration in Purple Group earnings compared to the previous half-year period’s net profit of 1.63 cents per share.
The poor results continued the trend of Purple Group’s declining net income, which started in late 2021.
The annual net income saw impressive growth up to August 2021, but subsequent results disappointed the market.
If one looks at Purple Group’s profit for the trailing twelve months, it declined from R53.8 million in February 2022 to R15.7 million a year later.
What it means is that the group’s price-to-earning (P/E) ratio almost doubled. Investors are now paying 92 times the generated earnings without significant growth to justify it.
It is much higher than Purple Group’s average P/E ratio since 2020 of 52 times earnings.
Daily Investor calculated the share price that would bring the company’s P/E ratio back to its historical level of 52 times earnings.
At the current earnings level, Purple Group’s share price would need to drop to R0.65 per share to trade at its historical P/E level.
Considering these numbers, it is clear that a great deal of optimism is still baked into the Purple Group share price despite the big decline since early 2022.