Is Purplebricks a turnaround ‘buy’ or on borrowed time?

At some point, bears could turn into bulls over Purplebricks Group plc (LON: PURP). Is that time now?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I wrote about hybrid estate agency Purplebricks Group (LSE: PURP) in December 2018, asking the question: “Will 2019 be the year to return to Neil Woodford favourite Purplebricks?”

My conclusion back then was that, on top of being loss-making, the firm’s business is also cyclical, “and a cyclical downturn could put the company in an extremely precarious position if it arrives.” I viewed the stock as ‘risky’, and had no plans to buy.

More dire figures

Today, the company released its full-year results for the year to 30 April, and the figures are grim. Meanwhile, the share price has slipped down a further 35% or so since my December article, so I’m pleased to have avoided the stock. But what now? Is continuing to shun Purplebricks still the right decision? Let’s look deeper.

Should you invest £1,000 in Mj Gleeson Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Mj Gleeson Plc made the list?

See the 6 stocks

I’m discouraged by the numbers. Compared to the previous year, revenue rose 55% to £136.5m, which seems to be an outcome driven by the firm’s strategy aimed at grabbing an ever-increasing share of the market. However, the operating loss increased by 88% to £52.3m.

Call me old-fashioned, but what’s the point in that kind of trading? Imagine running a smaller business such as a corner shop like that. The firm is losing money hand over fist.

To me, there’s no point in increasing revenue unless the operating profit is rising as well. We could say that Purplebricks is effectively ‘buying’ its higher sales. Indeed, the cash in the firm’s coffers plunged by 59% during the year from £152.8m to £62.8m.

That money is gone from the balance sheet forever. I hope existing shareholders feel all the frenetic sales activity has been worth it. Maybe the enjoyment of watching the company’s funny TV ads and the brief warm glow that they got from reading about this year’s higher revenue figure is compensation enough for the plunge in the share price!

I think there’s a big flaw in the strategy

Is Purplebricks trying to follow the Amazon strategy? The US-based mega-company started off as an online bookshop and rapidly grew to sell just about everything. Famously, the company paid scant attention to profitability and focused on growing market share. For many years, Amazon remained loss-making but became profitable in the end after growing into a huge business.

But there’s a big difference between the two companies, in that Purplebricks is operating in a dreadful sector. Estate agency is notoriously cyclical and tied to the fortunes of the property market. I remember in the eighties, one particular downturn led to the call “retrain estate agents!” My view is the property market looks dangerous and I see Purplebricks as being in a precarious position.

Cyclical companies ‘should’ be making hay while the sun shines. So, right now, Purplebricks should be stuffing its bank account with cash from strong incoming cash flow. That’s because it will need it to survive the next downturn in the market, the possibility of which stands over the firm like the Grim Reaper, in my view. Sadly, the firm is doing the opposite.

I’ve run out of space, but you can read the rest of today’s report from the company here, for what it’s worth. Needless to say, I’m continuing to avoid the stock, at least until the operating loss starts to reduce.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any share mentioned.  The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

If an investor put £10k into Greggs shares one month ago, here’s what they’d have today

Greggs shares have had a tough year but Harvey Jones says they're notably cheaper as a result, while the dividend…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

The Phoenix share price jumps 7.5% on today’s results, but still yields a stunning 9.4%!

Harvey Jones put his faith in the Phoenix share price and this morning was rewarded with a 7.5% jump on…

Read more »

Investing Articles

What’s been going on with the Barclays share price?

The rising Barclays share price reflects confidence in management’s strategy to improve business performance and enhance shareholder returns.

Read more »

Investing Articles

Prediction: in 1 year, the IAG share price could reach as high as…

The IAG share price has almost doubled in the last 12 months, but can this momentum continue in 2025? Zaven…

Read more »

Investing Articles

Prediction: in 12 months, here’s where the Glencore share price could be…

The performance of Glencore’s share price has been lacklustre, to say the least. But could all that change over the…

Read more »

Investing Articles

See how much an investor needs in their ISA to earn a £499 monthly second income

Harvey Jones crunches the numbers to show how it's possible to build a long-term second income by investing in a…

Read more »

Investing Articles

I’m considering buying more of this struggling FTSE 100 stock

This FTSE 100 stock hasn't exactly set our writer's portfolio on fire during the time he's owned it. But Paul…

Read more »

a couple embrace in front of their new home
Investing Articles

Prediction: in 1 year, the Taylor Wimpey share price could reach…

Can Britain’s reformed planning scheme send the Taylor Wimpey share price into overdrive? Here’s what the latest analyst forecasts predict.

Read more »