Purplebricks isn’t the only heavy faller I’ll be avoiding like the plague in 2019

Online estate agent Purplebricks plc (LON:PURP) has sunk over 70% this year. A bargain today? Paul Summers remains cautious.

| 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.

At a time when all share prices appear to be heading southwards, it’s an unenviable achievement that online estate agent Purplebricks (LSE: PURP) still manages to stick out like a sore thumb.

Priced at 489p at the end of January, the very same stock now changes hands for over 70% less. Does this make it a bargain? Not yet, in my view. 

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Vulnerable to Brexit

At first sight, the company’s strategy of doing everything possible to win market share appears to be working. As my Foolish colleague Kevin Godbold reported last week, revenue rocketed 75% to £70.1m over the first half of the financial year. Trouble is, operating losses rose by a higher percentage — 122% to be exact — to £25.6m. 

I sold my shares some time ago after becoming increasingly concerned by the pace at which the Solihull-based business was expanding overseas. While I understood management’s desire to capitalise on its first-mover advantage, I felt that the company needed to prove its business model closer to home first. I also became sceptical over its ability to withstand competition given that its pioneering low-fee approach is easily copied and could become the norm across the industry in time.   

Should Purplebricks reach a point where it is reporting consistent profits, I may become interested again. Having now trimmed the upper end of its revenue forecast for the current financial year to £165m-£175m from £165m-£185m on concerns over the impact of Brexit, however, I suspect this isn’t likely to happen for quite a while yet.

With a recent report from Rightmove stating that the average price of a home fell £10,000 over the last couple of months (the biggest such fall since 2012) I think there’s every chance that the shares could sink even further as market activity slows.

Wrong strategy

Frankie and Benny’s owner Restaurant Group (LSE: RTN) is another stock I’ll be distancing myself from next year. 

Like Purplebricks, the company’s share price has suffered over 2019 with a 33% reduction in value since the start of the year. Over a slightly longer period — since March 2015 — the shares are down almost 73%.

I can’t see things recovering any time soon, particularly following its decision to buy Wagamama. It may be an excellent brand, but I can’t help thinking that revitalising its other restaurants should be more of a priority for management than spinning yet another (large) plate. Since 40% of shareholders voted against the deal, it seems I’m not alone. 

Moreover, the acquisition has surely come at the wrong time. Dining out is a discretionary spend. In troubled times, it’s one of the first things to go. The fact that people already appear to be reining-in their spending as we approach our official date of departure from the EU (29 March) is an ominous sign for those operating in the highly-competitive restaurant sector. Indeed, accountancy firm Moore Stephens revealed yesterday that the number of insolvencies in the industry has increased by a quarter in 2018 (to 1,219) and is now at the highest level since it began following the sector in 2010. 

On a forecast price-to-earnings (P/E) ratio of nine for the next financial year and offering a tempting 6.7% yield based on the current share price, I can understand why some investors may be attracted to Restaurant Group. For me, however, it remains very much a value trap. 

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

Paul Summers has no position in any of the shares 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

Tired woman sleeping on London underground
Investing Articles

5 steps to monthly passive income streams of £500

Aiming for regular passive income streams, our writer walks through five key steps he would take.

Read more »

Business people shaking hands
Investing Articles

Director dealings: HSBC, National Grid, Taylor Wimpey

Director dealings can indicate whether a company's doing well. So, here are this week's director dealings from three of the…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

2 lesser-known stocks with 10% dividend yields!

With sky-high inflation, sizeable dividend yields can help my portfolio grow. These two stocks are paying 10% on average.

Read more »

Businessman pulling out wooden brick from toppling stack
Investing Articles

Is the Woodbois share price a bargain – or a value trap?

The Woodbois share price has seen big swings recently. Our writer considers why and explains his response.

Read more »

Electric cars charging in station
Investing Articles

Here’s why NIO stock is my top EV pick!

NIO stock had been one of the worst-performing shares over the last year, but it appears to have bottomed out.…

Read more »

Risk reward ratio / risk management concept
Investing Articles

The JD Wetherspoon share price has fallen 45% — should I load up?

The JD Wetherspoon share price has shed almost half its value in the past year. Should our writer buy another…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

Down 50%, is the Scottish Mortgage share price a bargain in plain sight?

The Scottish Mortgage share price has lost half its value in recent months. Is it now a bargain for our…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

A cheap UK share for the cybersecurity boom!

I'm backing this UK share after its share price collapsed this week. In fact, I've recently added this cybersecurity stock…

Read more »