Was Neil Woodford the only weight on the Purplebricks share price?

The Woodford funds have sold off over 10% of total Purplebricks equity these past few months.

| 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.

Purplebricks (LSE:PURP) has been intimately entwined with Neil Woodford’s recent investment management career. This means that the end of that career in its recent form has significant implications for the company share price. The question is, well, what?

One way of reading it is that as the clouds clear under the new fund management then the Purplebricks price will recover. There is, after all, something of an overhang there, and there have been substantial sales. The other is that there’s something else to worry about and I’m in that second camp.

The company was backed by Woodford’s funds early on, and it was one of the major paydays when it listed then soared. So far so good, a justification of the investment style. There’s nothing wrong, after all, with the idea of invading a business as staid as estate agency. Maybe not having to pay for high street shops, combined with a flat fee upfront rather than commission system, will work? But then the cracks started to appear.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

The first was concern over revenue recognition. So, if an upfront fee is paid then when does that actually become income that profits can be calculated from? It’s not when the cheque is received, for there’s still much work to be done. We also shouldn’t insist that the sale must have gone through before recognition as, after all, it’s not a ‘no sale, no pay’ fee. Worries about this produced the first setback for the Purplebricks share price.

Then there was the foreign expansion that blew up. And then this summer and autumn, we’ve seen the Woodford effect in reverse. The problem was having too much in illiquid stocks to pay off redemptions – always a possible problem in an open-ended fund. That meant having to sell down, aggressively, stakes in more liquid holdings – Purplebricks being one of those. From June to September the stake went from 29% to 17.64%. That’s a lot of selling and it would, in the absence of anything else, have dropped the share price.

Which brings forward our question – is it just that selling depressing it? And now that the funds are under new management, no longer gasping for liquidity, will there thus be a bounce?

There could be, but I doubt it. For I’m worried about those two more basic things. Firstly, the essential idea itself. Companies work better when incentives are aligned. Payment by results is the way to motivate salesmen and thus a percentage fee on a sale seems to me the right way to be running an estate agency. I think this will become more obvious during the next housing price downturn.

Secondly, that revenue recognition thing. Because of the past movements in that, what is booked as a profit and when, we don’t really know whether the model even works today.

There could be a Purplebricks share price bounce as the Woodford fund selling pressure lifts. But I’m willing to bet that there won’t be for more fundamental and underlying reasons. Steer clear.

British CEO gobbles up £238,000 of own stock

What company does he run?

And why is he so confident in its long-term potential?

This new report - ‘One Top Growth Stock from The Motley Fool’ - reveals the full details, both risks and opportunities. Some of which you may find frankly, unbelievable.

Though past performance does not guarantee future results, over the past 5 years, it’s seen consistent:

  • Double-digit revenue growth
  • Returns on capital almost 600% the UK average
  • Now, profits are exploding again - up 46% in 1 year!

It’s no wonder insiders are buying this stock hand over fist. Last year, they bought a total £492,000 of shares. And now might be the ideal moment to join them.

So please, don’t miss this report, ‘One Top Growth Stock from The Motley Fool’ Including both risks and opportunities.

Secure your FREE copy 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.

Neither Tim nor The Motley Fool UK have a 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

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Here’s how a 40-year-old could start investing £100 per week to retire early

If a 40-year-old decides to start investing today, here's how they could potentially turn £100 a week into over £500k…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

The FTSE 100 is up 60% in 5 years. Here’s why — and a big lesson!

The flagship FTSE 100 index has put in a very strong performance over five years. There's a specific reason for…

Read more »

Investing Articles

How much do investors need in an ISA to earn a £2,500 monthly passive income?

Charlie Carman explores how investors could strive for £30k in tax-free passive income each year from a dividend stock portfolio.

Read more »

Investing Articles

How much would a 45-year-old need to invest in an ISA to earn a £1k monthly passive income at 65?

Harvey Jones looks at how much an investor would need to put away every month to build a steady passive…

Read more »

Investing Articles

3 things to do ahead of the new 2025-26 ISA year

It's time for us all to put on our investing boots and get to work on developing our plans for…

Read more »

Older couple walking in park
Investing Articles

Is £150,000 enough to generate £1,000 a month in passive income?

Stephen Wright takes a look at three UK stocks with dividend yields above 8% that passive income investors might be…

Read more »

Investing Articles

Aim to earn a £50k second income in retirement by investing just this much each month

Even with a small monthly investment, it’s possible to earn a £50k second income with a successful investment strategy and…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Down 22% in a month! Is this my chance to buy shares in this FTSE 100 outperformer?

Shares in InterContinental Hotels Group have outperformed the FTSE 100 over the long term. So is a chance to buy…

Read more »