The Motley Fool

Forget Purplebricks Group plc, here’s a high-growth stock that could trounce it in 2018

Purplebricks (LSE: PURP) has certainly been a big success for shareholders, with its share price more than quadrupling since its December 2015 float, to 419p. But how much of that represents solid long-term potential and how much is hype?

The former is tricky to evaluate at this stage, but there’s no denying that there’s been plenty of hype — especially as the company’s aggressive TV advertising campaign has propelled it from an unknown to a household name in such a short spell.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Those ads go to lengths to stress that Purplebricks isn’t just some internet thing, but it’s a real group of estate agents. Yet isn’t that doing the opposite of differentiating itself? There’s the no-commission angle too, which is excellent marketing. Yet you still have to pay them, just using a different charging strategy.

Anything special?

What I’m really seeing is not a revolutionary new idea, but a new entrant in a long-established and competitive industry. And it isn’t yet profitable.

Purplebricks isn’t expected to report its first pre-tax profit until the year ending April 2019, and then it’s predicted to be just a tiny one. Fundamentals in the year a company turns profitable aren’t very useful, but by 2020 we should be seeing a more sustainable profit level — and that puts the shares on a forward P/E multiple of 34.

That might actually turn out to be good value, but right now we have no way of even guessing, and a lot can change in the next two years.

My current thoughts are that Purplebricks shares are at best fully-valued today, and they could be seriously overvalued.

Higher flyer?

If you want to put your money into a growth prospect, I reckon Ideagen (LSE: IDEA) is well worth a close look. It’s another company whose shares have more than quadrupled in value, over five years in this case, to 105p. 

But this time we’re looking at a track record of strongly rising earnings per share, forecasts for two more years of double-digit growth, and significantly lower P/E ratios — 25 for the current year, dropping to 23 a year later. That’s still above the FTSE 100‘s long-term value of around 14, but I think it’s a fair valuation considering the firm’s growth prospects.

Ideagen describes itself as “a leading supplier of information management software to highly regulated industries.” That’s rather a niche part of the software business and immediately makes me think of a captive clientele and high barriers to entry. And the firm has an impressive list of more than 3,000 customers — including Royal Dutch Shell, BAE Systems, and even the European Central Bank.

Great first half

On Tuesday, Ideagen reported a 43% rise in revenue for the first half of the year, to £17.2m, with recurring revenues accounting for 63% of total revenue — which suggests high visibility of future earnings.

Adjusted EBITDA came in 52% ahead at £4.7m, with adjusted EPS up 38% to 1.73p. If anything, that suggests to me that current forecasts might even be a little on the conservative side.

The interim dividend was lifted by 15% to 0.078p, though with a forecast yield of only 0.2% that doesn’t mean a lot just yet. But I see potential for this £200m company to turn into a mature cash cow when it reaches the stage of needing to invest less in future growth.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell. 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.