After 3-bagging in 3 months, is Purplebricks plc set to crash?

As a holder of shares in online estate agent Purplebricks(LSE: PURP), I'm growing increasingly nervous. Sure, a rise of 230% in the company's share price since the start of December is most welcome but is such a massive appreciation justified?

Let's look at the arguments for and against staying invested in the industry disrupter.

The arguments for

Perhaps the clearest reason for staying the course with Purplebricks is the fact that its flat fee business model appears to be gaining popularity with sellers. For evidence of this, just consult the company's half-year results from December.

Back then, the company reported that it had sold and completed on £2.59bn of property compared to almost £2.77bn in the entire previous year. With revenue climbing 159% to £18.7m and maiden profits of £300,000 before interest and tax for the UK business (compared to a £6m loss over the same period in 2015), the Solihull-based business is clearly making the sort of progress early investors hoped for.

Another reason for thinking there could be more to come from Purplebricks' shares is the company's decision to enter the US market, especially given that its foray into Australia already appears to be progressing well.

With its recent £50m placing "materially oversubscribed", it seems many institutional investors agree. Purplebricks will now use this money to finalise the recruitment of a management team for its US operations, build its brand and continue developing its platform. After recruiting the requisite local property experts, the rollout is expected to start in the second half of 2017.

Based on its success elsewhere, it seems fairly safe to assume that the company's low cost offering will have appeal for sellers in the highly fragmented US market -- estimated to be worth $70 annually in estate agent commission. That said, its decision to concentrate on a number of key states also seems sensible for now. Better to trial its services before committing wholeheartedly.

Aside from the above, Purplebricks' £29m net cash position and first-mover status are both highly attractive. Make no mistake, more established players are going to find it very tough to keep up with the company if it can hit its ambitious growth targets.

The arguments against

Perhaps the biggest issue with Purplebricks is its current market capitalisation. At £837m, it now towers over more traditional agents such as Foxtons (£277m) and Countywide (£404m). Shares in the former -- which announces full-year results on Wednesday -- now trade on 17 times forecast earnings for 2017. The latter is even cheaper on just nine times earnings. With investor expectations growing by the day and fairly limited profits at the current time, Purplebricks will need to put in an astounding performance over the next few years to justify its vertigo-inducing valuation.

There is also the argument that Purplebricks' interest in cracking the US market is a case of too much, too soon. While giving the company a degree of geographical diversity, some investors would prefer to see clear evidence that it has dominated its home market before venturing into new territories.

Bottom line?

Only time will tell if Purplebricks really is the game-changer it purports to be. For now, I'll be sticking with the shares. Should these astounding gains continue (shares are already up 8.5% today) however, it may be sensible to take at least some cash off the table.

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Paul Summers owns shares in Purplebricks. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.