One of the cornerstones of a sound investment strategy is to identify shares that have been mis-priced by the market.
Could it be argued that Kier Group (LSE: KIE) and Purplebricks Group (LSE: PURP) are a couple of such shares being unfairly treated by the trading community? These particular property stocks have lost 90% and 67% of their value respectively over the past year, a descent that leaves Kier for one dealing on a prospective earnings ratios of 1.5 times.
The question is, then, do these low ratings represent a great buying opportunity for against-the-grain investors? And if so, which is the better selection?
On the brink?
A share that carries a valuation as low as Kier’s is practically loaded with flashing red lights. Companies trading on these kinds of multiples are prime targets for hopeful punts, but what’s the sense of making such an investment when there’s a strong chance of it going bust?
And there’s certainly a strong chance of this particular small-cap dropping off the edge of the planet in the not-too-distant future.
Let’s face facts: Kier is absolutely swimming in debt. Take no notice of what the business’s balance sheet says as it looks as if it has more than a billion pounds worth of financial obligations for which it is struggling to pay.
Another rights issue could be just around the corner, but given the company’s trouble to attract fresh investment last time around — just 38% of shares were taken up during the autumn fundraising — and Kier’s worsening trading performances since then, I’d be amazed to see investors riding en masse to the rescue if called upon again.
A better buy?
The fact that Kier Group is trying desperately to avoid going bust leaves Purplebricks, at least in the context of this article, as the victor by default.
But the online property marketing play has considerable troubles of its own as the cost of its ambitious international expansion programme weighs. We only need to look at Wednesday’s disastrous trading update in which it advised that operating losses ballooned to £52.3m in the 12 months to April 2019 from £27.8m a year earlier.
Once seen as the road to explosive long-term profits growth, Purplebricks’ aggressive move into other global territories has proved a disaster, heaping enormous stress on the balance sheet — cash on the books more than halved last year to sit at £62.8m as of April — and forcing it to eat a large slice of humble pie in the process.
The company announced plans to pull out of Australia in the spring and this week declared its intention to slink out of the US too, following on from those latest results. Its travails on foreign shores are only one part of Purplebricks’ problems, though, as with the Brexit issue remaining far from resolved, the cyclical slowdown in the UK homes market threatens to drag on.
So whilst on safer ground right now, I consider this property play — like Kier Group — as one to avoid like the plague right now. You’d be much better off deploying your hard-earned investment cash elsewhere.
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.
Royston Wild 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.