The Motley Fool

Why I’d sell this 33% riser and buy the Morrisons share price instead

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.

Purplebricks  (LSE: PURP) has disrupted the traditional estate agency market with its online fixed-fee model. Meanwhile, Morrisons  (LSE: MRW) has successfully adapted its business in the face of supermarket-sector disruptors Aldi and Lidl.

Here, I’ll discuss the factors that have persuaded me the recent strong rise in the Purplebricks share price is a good opportunity to sell, and why I’ve concluded the weakness of the Morrisons share price has created a good opportunity to buy.

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!

Renewed focus

Purplebricks’ shares hit a multi-year low of 90p in May, but began a sustained recovery from early July. This followed the release of the company’s annual results. Having previously announced the closure of its Australian business, it revealed it’s also ending its equally disastrous expansion in the US.

Clearly, investors have welcomed the news, and the company’s renewed focus on its established UK operations, and smaller Canadian business. Management reckons Purplebricks is now in a position to “deliver profitable growth for shareholders.”

Sustainability

The company trumpeted UK revenue growth of 21% to £90m for the year, and an operating profit of £5.3m. However, if you look behind the 12-month figures, you’ll find revenue slumped 13% in the second half, compared with the first half, and the business swung to an H2 operating loss.

I’m not convinced this is entirely down to the current economic and political uncertainty in the UK, because I’ve long questioned the sustainability of the company’s no-sale-still-pay business model. New chief executive Vic Darvey recently revealed he’s considering moving away from the model, which he admits may not be working in some areas of the UK.

The market is rating Purplebricks as a high-growth stock. At a current share price of 120p, it’s valued at £368m, or four times revenue. This is a higher rating than Boohoo, for example, which is growing both revenues and profits at a rate of knots. As such, I see Purplebricks as overvalued, and possibly grossly so.

Turnaround

A third consecutive year of strong sales and profit growth suggests Morrisons is adapting well to the disruptive influence of discounters Aldi and Lidl, and what it calls “an ever-changing British retail scene.”

The turnaround followed boardroom changes in 2015, and a number of smart strategic moves by the new management team. Chief executive David Potts isn’t resting on his laurels. He’s stated: “We remain confident that Morrisons still has many sales and profit growth opportunities ahead, and expect that growth to be meaningful and sustainable.”

Growth engine

I put Morrisons success down to good management and innovation in its core operations, and a canny drive into wholesale. Deals with the likes of Rontec, Sandpiper, MPC Garages, McColl’s Retail and Amazon have provided the company with a growth engine for the future.

Morrisons and Amazon, for example, announced earlier this year they’re expanding their ultra-fast, same-day, online grocery home delivery service to many more cities across the UK. Amazon’s UK boss commented: “We are committed to growing our grocery business … and our relationship with Morrisons is an important part of that long-term growth.”

At a share price of 188p, Morrisons trades on 14 times forecast earnings, with a prospective 3.7% dividend yield. I think this represents good value and that the company could even become a takeover target.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

G A Chester has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended McColl's Retail. 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.