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Why buying Sirius Minerals and Purplebricks could destroy your retirement riches

Long-term investors in Purplebricks Group (LSE: PURP) are being tested to the limit right now. The AIM company’s share price has tanked by more than 40% during this period and, as the political problems surrounding Brexit looks set to reign for much longer (indeed, for many years should a ‘no deal’ exit transpire), further painful drops cannot be ruled out.

Back in March the online property-selling portal warned that revenues for the full fiscal year (to April 2018) would fall short of estimates because of “underlying softness and adverse weather in late February and early March” in the UK, a factor that drove share prices to their cheapest in almost a year.

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In the end group revenues still doubled from the year earlier fiscal period, to £93.7m, the firm’s market share swelling as more and more sellers turned their backs on traditional estate agents and their high fees. But the rate at which Purplebricks can continue growing revenues is up for debate as homebuying activity in the UK slows.

Global expansion

Those playing the long game remain convinced that rapid global expansion will pave the way for stunning returns many years into the future.

The extra £125m investment from Axel Springer in March has already boosted its expansion into North America, Purplebricks snapping up Canadian digital real estate business Duproprio for a shade under £30m this month. The funds will also help to accelerate its presence in the US where it now operates in six states.

As my Foolish colleague G A Chester recently outlined, however, there remains some doubt over whether Purplebricks will generate the blowout profits growth its investors have hoped for, slowing sales and spiralling marketing costs now casting a cloud over its business model.

Right now City analysts are expecting the property play to turn a profit in fiscal 2020 at the earliest. But with losses in the US and Australia both widening in the last fiscal period and conditions worsening in its core British marketplace, expecting Purplebricks to snap into the black next year is a bit of a tough ask in my opinion.  

Another risky stock

Clearly investing in Purplebricks is no little gamble today. The same can be said of Sirius Minerals (LSE: SXX) too.

Fellow Fool Paul Summers recently penned a piece explaining how the polyhalite producer could make you a mint by retirement. Progress concerning the construction of the giant Woodsmith mine and its related infrastructure has been impressive, as has been the performance of its sales teams in flogging the company’s POLY4 product.

Indeed, recent deals with major African and Chinese customers mean that aggregate peak contracted take-or-pay sales volumes now stands at 5.7m tonnes per annum, up from 4m just a few weeks back.

However, there remains a long way to go before Sirius Minerals pulls maiden material out of the North Yorkshire ground at the beginning of the next decade. Hypothetical inside troubles like mine development and stretched finances are one thing. Concerns over what fees it can command for its product in the years ahead as potash supply booms across the globe are another.

The business may well become the profits powerhouse that many are expecting. But at this stage only the foolhardy would bank on the mining giant providing you with the riches to retire in luxury.

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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.

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