The Motley Fool

This growth stock has beaten the Purplebricks share price by 45% in 2018

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.

Businessman standing in front of screen
Image source: Getty Images.

The Purplebricks Group (LSE: PURP) share price has fallen by 58% so far this year. Today I want to take a fresh look at this fast-growing online estate agent.

I’m also going to take a look at a different kind of internet stock. The company concerned has 10-bagged over the last 10 years and is ahead of Purplebricks by 45% so far in 2018.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Should we ignore mounting losses?

My colleague Graham Chester reviewed Purplebricks’ half-year trading update recently. I agree with his view that we don’t yet have enough information to know whether the firm will hit its growth targets this year.

What I do know is that the near-term outlook for the firm seems to be worsening. One year ago, analysts expected the firm to report earnings of 2.3p per share on sales of £169m in 2018/19. Today, forecasts indicate a loss of 10.8p per share on sales of £173m.

It’s a similar story in 2019/20. Forecasts for earnings of 10.4p per share have been replaced with an expected loss of 4.6p per share.

One reason for these downgrades is that the group’s international expansion has been ramped up. In the short term, this means that profits from the UK business are being swallowed up by operations overseas.

Is PURP a genuine disrupter?

If the group’s global expansion is successful, this business could become a genuine disrupter, like Amazon.

Personally, I don’t think this is likely. Purplebricks’ business model seems more like evolution than revolution to me. Its sales and property listings still depend on a small army of estate agents (630 in the UK). The only difference I can see is that they don’t have offices.

Although the firm’s fixed-fee model is different to a traditional commission rate, I believe mainstream agents will be able to adapt their pricing to become more competitive if they need to.

Purplebricks may well cause estate agents’ profit margins to fall. But I don’t think it’s a truly disruptive business. For this reason, I view the shares as expensive and risky.

One internet stock I admire

Picking the right internet businesses to back isn’t easy. The gap between success and failure is often quite small.

However, one tech stock that has delivered growing profits and dividends over many years is web hosting and cloud services provider Iomart Group (LSE: IOM). The share price of this AIM-listed firm has risen by 990% over the last 10 years, from 32p to 350p.

More recently, sales have risen from £56m in 2014 to £98m last year. Adjusted pre-tax profit has risen from £14.6m in 2014 to £24m in 2018.  

Tuesday’s half-year results suggest this progress is continuing. Sales rose by 8% to £50.9m during the six months to 30 September, while adjusted pre-tax profit rose by 7% to £12.4m. Shareholders will receive an interim dividend of 2.45p per share, an 8% increase on the same period last year.

Why I’d buy

Iomart has generated a return on capital employed of 15% over the last 12 months. That means that for each £1,000 invested in the business, it generated an operating profit of £150.

This is consistent with previous years. It tells me that this is a good quality business that’s generated real returns for shareholders.

The stock currently trades on 17 times forecast earnings with a 2.2% yield. That’s not cheap, but I think it’s worth considering as a long-term buy.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK owns shares of Iomart Group. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.