Shares in online estate agent Purplebricks (LSE: PURP) crashed this morning following a downbeat half-year trading update. Is this penny stock one to avoid at all costs? Or should long-term Foolish investors like me be getting ready to pounce? Here’s my take. 

“More challenging” market

Buoyed by the stamp duty holiday introduced by the government, we’ve seen a post-pandemic boom in the UK property market. Today however, Purplebricks gave indications that the bubble — if we regard it as such — could be close to bursting.

New instructions have “slowed significantly“, making the six-month trading period to the end of October “more challenging” for the AIM-listed company. In fact, PURP estimated that the number of properties brought to market was roughly 23% below the same period in 2020.

To complicate matters, the firm has also been making adjustments to its business model over this time. A new pricing system has been introduced and staff have been brought in-house. While CEO Vic Darvey said he had been “encouraged” by results from this new strategy, it’s clear this isn’t apparent in performance just yet.

What now?

Confirmation of half-year numbers is expected on 14 December. Where the Purplebricks share price goes between now and then is anyone’s guess. Personally, I wouldn’t be surprised if the selling pressure continued, especially as the company expects the trading environment to remain tough.

Of course, there’s not much Purplebricks can do about the supply/demand imbalance. And even if the market is only pausing for breath as the colder winter months approach, bills will still need to be paid. As a result, the company now expects Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) for the full financial year will come in “below previous guidance“. That’s hardly encouraging stuff.

Penny stock perils

Today’s 35% fall in the Purplebricks share price leaves the stock trading at just 34p a pop. Had I invested when the company’s valuation peaked back in July 2017, I would have lost 93% of my capital, on paper.

If this isn’t a lesson on the need to stay diversified within a portfolio, I’m not sure what is. Sure, penny stocks have the potential to deliver life-changing returns over a short period of time. Purplebricks is proof that the reverse is also true and, I submit, far more likely. 

You might speculate that investor sentiment couldn’t get much worse and now might be the time to buy. I can see the logic in that. However, is a company that seems unable to grow investors’ wealth even when times are good, one I want to own when the (housing) market slumps?

Even if things do rebound, it’s clear PURP is needing to spend a lot of money to keep up to speed. Cash fell from £75.8m at the end of October 2020 to £58m last week. Ongoing investment for any business is inevitable. That said, I’m sceptical as to whether any of this will help Purplebricks truly distinguish itself in what remains an incredibly competitive market with increasingly digitally-savvy rivals.

One to avoid

I’d say Purplebricks’ purple patch is long in the past and unlikely to return any time soon. Having once owned the stock, it now goes firmly into my ‘avoid’ pile. As economist John Maynard Keynes once reportedly said: “When the facts change, I change my mind.” 

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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.

A booming housing market has been good news for listed housebuilders, mortgage advisers and estate agents. And this is borne out by the latest full-year numbers from Purplebricks (LSE: PURP). But should investors like me be ready to take a stake in this growth stock? I’m not so sure… 

Rocketing earnings

Now, don’t get me wrong. The figures from the online estate agent were pretty encouraging.  Unsurprisingly, the number of instructions received by Purplebricks jumped higher, by 14%, to a little over 58,000 in the year to 30 April.

The average revenue per instruction received also increased by 7%. All told, this led the online estate agent to report a 13% rise in revenue to £90.9m. Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) also rocketed 314% to £12m. 

On top of these numbers, Purplebricks said it would be launching a new pricing model this month, following a successful trial in the North West. Customers will be given the option of having their upfront fee reimbursed if they don’t sell their home.

However, since it’s too early to say how well this will be received, Purplebricks said it expected FY22 EBITDA would be flat year-on-year. This would be in accordance with what the market’s expecting. 

Unfortunately, the market doesn’t seem all that impressed with today’s news. Purplebricks’s shares were modestly lower in early trading.

Why might this be?

There could be a few reasons. For one, some investors may still be finding it hard to forgive the company for over-reaching itself in the early days by trying to capture overseas markets.

Yes, the share price is up almost 70% in the last 12 months as Covid-19 has been (almost) defeated. However, many small-cap growth stocks have experienced similar gains. Moreover, Purplebricks’ valuation is still 83% lower than where it was nearly four years ago. As a one-time holder, I’m just glad I departed with a profit back then. 

It’s also hard to say where the Purplebricks share price goes from here. Sure, there are things to be positive about. The UK housing market is hot and the new strategy could work. On top of this, Purplebricks’ finances also look pretty sound.

Following the sale of its Canadian business, it had £74m in cash at the end of the period. Like other firms, PURP has also repaid the furlough support it received (£1m) over the pandemic.

Against this, investors need to bear in mind the stamp duty holiday has now finished. Whether this leads to a fall in sales and a subsequent reversal in the housing market remains to be seen.

Regardless, CEO Vic Darvey’s goal of gaining market share and growing annual revenue by more than 20% in the medium-term won’t be easy. The environment in which Purplebricks operates remains highly competitive. Yes, effective marketing will help, but that comes at a cost.

Speaking of which, there’s also the opportunity cost for investors like me to consider. Why bet on a company that’s still to generate meaningful profits in an incredibly buoyant market when I can probably generate more-than-adequate returns for much less risk elsewhere?

Better options

Despite once being optimistic about its ability to truly disrupt a stale industry, I’m far warier of Purplebricks than I used to be. In my view, there are far more promising growth stocks to invest in. 

The post The UK housing market is booming, but I’d avoid this growth stock appeared first on The Motley Fool UK.

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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.

Once you wade through the waffle, however, it seems clear to me that this is one company that should still be avoided like the plague — and not simply because it was once a core holding for fallen fund manager Neil Woodford. 

Stable…for now

Revenue was very slightly up to £64.8m on a pro forma basis over the six months to Halloween, with almost three-quarters of this amount coming from the UK (and the remainder from the company’s operations in Canada).

This, however, couldn’t save the former market darling from swinging to an operating loss of £1.2m for the period. Once the impact of closing its businesses in Australia and the US are taken into account, a loss of £14.1m was recorded. 

As one might expect, attempts were made to accentuate the positive. Fairly meaningless numbers, such as the fact that Purplebricks had saved its customers over £150m in commission over the period, were highlighted. Relatively new CEO Vic Darvey also stated that management was “very pleased with the progress made” given the generally skittish housing market, adding that “diverse revenue streams” and 12% year-on-year growth in the average amount of money it is making per instruction had helped smooth things out.  

Remarking that the business is now “stabilised” is one thing, but I think the suggestion that Purplebricks is “enjoying profitable trading” is stretching things somewhat.

Cautionary tale

Today’s market reaction might not raise any eyebrows, but it’s worth reminding ourselves just how poor an investment the company has been lately. 

At the beginning of the year, Purplebricks’ shares were trading at 147p a pop. Go back to August 2017 and the very same stock was around 485p. As I type, the price is 104p.

Could this have all been foreseen? I think so.  

Purplebricks is a cautionary tale of what happens when companies try to grow too quickly. As mentioned quite a while ago, it’s risky expanding into new markets when you’re still attempting to verify the business model back home.

Indeed, this desire for growth at any cost is coming back to haunt the business and beginning to impact its balance sheet. At £41.6m, Purplebricks’ cash position at the end of October was 34% less than where it stood just six months earlier (£62.8m).

Not that management seems rattled, stating that it “remains confident” of hitting its medium-term target of holding a 10% share of the UK market. Personally, I’m struggling to see a catalyst for another purple patch that will be sufficient to raise it from the 4.1% share it held at the end of October. The company’s TV ads may have grabbed attention, but so too has the fact that it charges a fee to sellers even if it’s unable to shift their property. That might be a risk worth taking when the market is buoyant, but it becomes a significantly less attractive proposition in a Brexit-obsessed, recession-fearing UK.  

All told, today’s numbers haven’t changed my view on Purplebricks. I’d leave it to the traders and focus instead on finding quality businesses that can be held for decades.

The post Why I’m still avoiding this former Neil Woodford-approved growth stock appeared first on The Motley Fool UK.

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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.

I think the Brexit factor could be damaging for online estate agent Purplebricks (LSE: PURP), as well as clothing retailer Ted Baker (LSE: TED). I wouldn’t be surprised if both companies issued profit warnings before the year’s out, which is why they’re high on my list of stocks to avoid.

Continuing operations

Purplebricks is scheduled to issue a trading update on 7 November, followed by half-year results on 12 December. Late last year, it lowered its full-year revenue guidance from between £165m and £185m to between £165 and £175m and subsequently slashed it to £130m-£140m two months later. So it’s got form for missing expectations.

The UK and Canada have become the group’s continuing operations, as it’s exited Australia and the US. In the second half of its last financial year (1 November to 30 April), Purplebricks reported UK revenue of £41.8m, down over 13% from H1. Its Canadian business, acquired midway through H1, posted revenue of £14.5m for H2, which I estimate represents zero growth on H1. Annualising the UK and Canada revenue gives £112.6m.

For the current financial year, the City consensus, which I assume is for continuing operations, is revenue of £124.8m. With UK revenue falling 13% over the last reported six months, and Canada flat, I think the company’s going to struggle to meet the £124.8m market expectation.

In July, it said: “Current economic and political uncertainty in the UK means market conditions remain challenging with volumes continuing to trend downwards.” Just this week, Rightmove, in its latest monthly housing market update, reported the “number of sellers coming to market down by 13.5% compared to this time last year.”

In these conditions, I really can’t see Purplebricks doing the double-digit growth on last year’s UK/Canada H2 revenue run-rate that it needs to meet market expectations.

Existential crisis?

The aforementioned EY report revealed not only that 31% of FTSE retailers have warned on profits over the last 12 months, but also that 43% of these were from the apparel sub-sector and that 42% of all companies warning in Q3 had warned in the prior 12 months.

This is statistical double trouble for Ted Baker. As well as being a clothing retailer, it’s already warned on profits once this year (in June).

Interim results three weeks ago made for grim reading, with the company swinging to a loss before tax of £23m on 0.7% lower revenue, and slashing the dividend 56%. The shares fell heavily on the day, but my colleague Kevin Godbold’s review of the results concluded with him seeing “no greater value today than there was apparent yesterday.”

The company reported “significant challenges impacting our sector including weak consumer spending, macro-economic uncertainty, and the accelerating channel shift towards e-commerce.” Worryingly, Ted isn’t benefitting from the channel shift. It reported a 1.3% fall in its e-commerce sales.

I think there’s a high risk of a further profit warning in a trading update pencilled-in for early December. And with net debt of £141m, and borrowing facilities of just £180m, I fear the situation could easily develop into an existential crisis, requiring an equity fundraising.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove and Ted Baker. 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.

Often, the growth potential of a stock turns out to have been over-egged, or a case of the emperor’s new clothes, and investors end up with a substantial loss. In these situations, three things we commonly see flaws in are the business, the transparency of its financial reporting, and its market valuation.

With this in mind, three stocks I’m currently avoiding are Purplebricks (LSE: PURP), First Derivatives (LSE: FDP) and Telit Communications (LSE: TCM).

Purplebricks

Business: I’ve serious doubts about the long-term viability of online estate agent Purplebricks, due to diminishing revenue returns from increasing marketing spend. In its latest financial year, it eased back modestly on UK marketing in the second half, and saw second-half revenue plunge by £6.5m. It also swung to an operating loss.

Reporting: Purplebricks refuses to disclose the number of its instructions that result in a completed sale. I’ve seen an increase in dissatisfied customers on Trustpilot recently. ‘Bad’ ratings in the last 475 reviews are running at three times the historical rate. I suspect this is a further indication the business is going backwards.

Valuation: At a share price of 110p, Purplebricks is valued at £337m. This is 2.8 times my estimate of trailing revenue of £119m from continuing operations. The rating is far too high, in my view.

First Derivatives

Business: New technology is a sector to which investors seeking millionaire-maker stocks are naturally drawn. Companies in the sector can readily fashion impressive-sounding growth stories. A few buzzwords, a collaboration with a tech giant, and talk of multi-billion-dollar addressable markets can do wonders for investor excitement. Fintech and martech specialist First Derivatives is a case in point.

Reporting: The company’s accounts came in for severe criticism last year from renegade City analyst Matt Earl’s ShadowFall outfit. While First Derivatives has been valued as a high-performing software company, ShadowFall reckoned that on a true view of the accounts, it has the characteristics of a low-margin consultancy or recruitment business.

Valuation: When paper profits are questionable, my default valuation measure is free cash flow. First Derivatives generated around £6m last year. Against this, its market valuation of £574m at a share price of 2,150p is far too rich in my book.

Telit Communications

Business: Another new technology stock is “global enabler of the Internet of Things” Telit Communications. It sold its automotive solutions division earlier this year, reduced its debt, and reported a net cash position at the half-year end.

Reporting: Back in 2017, I showed how Telit’s accounting enabled it to post impressive paper profits, while generating little or no free cash flow. A few months later, founder and chief executive Oozi Cats and his wife Ruth (apparently on the payroll as an ‘art curator’) were exposed as fugitives from historical fraud indictments, and high-tailed it out of Dodge.

Valuation: Cats remains at large and a major shareholder (dealing in the stock as recently as last month). But with new faces in the boardroom, how should we value the remnants of his empire? At a share price of 155p, the market says £206m. I say, show me the free cash flow to justify it.

The post 3 stocks I’d avoid at all costs appeared first on The Motley Fool UK.

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G A Chester 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.

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.

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.

The post Why I’d sell this 33% riser and buy the Morrisons share price instead appeared first on The Motley Fool UK.

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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.

However, having announced it’s pulling the plug on a cash-burning expansion into Australia and the US, and refocusing on what it calls its “flagship markets” of the UK and Canada, could the shares now be the bargain of the year?

UK revenue

I’ve long been sceptical about the claimed “success”of Purplebricks’ business model in the UK, and its long-term viability. Yesterday’s results leave me more doubtful than ever.

In the table below, I’ve broken out historical UK revenue and marketing spend into half-years (H1 and H2). The growth-rate figures are on the basis of H1-H1 and H2-H2. A recent change to accounting rules doesn’t have a major impact (numbers under the new rules are in italics), but does make my table look more complicated! Bear with me, and I’ll explain what I think are some very simple points.

As you can see, the revenue growth rate has fallen away rapidly. The £41.8m for H2 2018/19 was just 6% ahead of £39.6m in H2 2017/18. Furthermore, it was 13% down from H1 2018/19’s £48.3m — the first time any half-year revenue has been lower than the preceding half.

Not that Purplebricks enumerated or commented on the H1/H2 revenue deterioration. It just said in the full year “the UK performed well with revenue up 21% year-on-year.”

UK costs

In an article last December, I noted Purplebricks seems to have to continually ramp-up its marketing spend, but is getting a diminishing revenue return from it. I suggested it would reach a tipping point in H2 2018/19 where the revenue growth rate would no longer be higher than the marketing spend. As you can see in the table, revenue’s 6% increase was outpaced by marketing spend’s 17%.

Furthermore, marketing, plus sales costs and admin expenses, meant H2 total costs of £42.1m were higher than the revenue of £41.8m. The company moved to an operating loss of £0.3m from a H1 profit of £5.7m. Again, management neither enumerated nor commented on this.

Canada

Purplebricks acquired its Canadian business this time last year for £27.3m. It said the business generated revenue of £26.2m in 2017.

Annualising the 10 months it contributed to Purplebricks’ 2018/19 financial year, gives revenue of £28.4m, while annualising its H2 contribution gives £28.8m. So top-line growth is not particularly impressive. Meanwhile, it’s running at an annual operating loss of £6.4m (H2 annualised).

Bargain of the year?

Putting together the UK and Canada businesses on a H2 annualised basis gives revenue of £112.4m and an operating loss of £7m. At a share price of 100p, the company’s market capitalisation is £306.4m, equating to 2.7 times revenue.

Could the shares be the bargain of the year at 100p? To be honest, in view of the stalling UK revenue growth, pedestrian growth in Canada, and my doubts about whether the business model can ever produce long-term profitable growth of any substance, I’d avoid the stock at 100p. Maybe one times revenue plus balance sheet cash would be fair: 57p.

The post Could Purplebricks shares be the bargain of the year? appeared first on The Motley Fool UK.

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G A Chester 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.

My conclusion back then was that, on top of being loss-making, the firm’s business is also cyclical, “and a cyclical downturn could put the company in an extremely precarious position if it arrives.” I viewed the stock as ‘risky’, and had no plans to buy.

More dire figures

Today, the company released its full-year results for the year to 30 April, and the figures are grim. Meanwhile, the share price has slipped down a further 35% or so since my December article, so I’m pleased to have avoided the stock. But what now? Is continuing to shun Purplebricks still the right decision? Let’s look deeper.

I’m discouraged by the numbers. Compared to the previous year, revenue rose 55% to £136.5m, which seems to be an outcome driven by the firm’s strategy aimed at grabbing an ever-increasing share of the market. However, the operating loss increased by 88% to £52.3m.

Call me old-fashioned, but what’s the point in that kind of trading? Imagine running a smaller business such as a corner shop like that. The firm is losing money hand over fist.

To me, there’s no point in increasing revenue unless the operating profit is rising as well. We could say that Purplebricks is effectively ‘buying’ its higher sales. Indeed, the cash in the firm’s coffers plunged by 59% during the year from £152.8m to £62.8m.

That money is gone from the balance sheet forever. I hope existing shareholders feel all the frenetic sales activity has been worth it. Maybe the enjoyment of watching the company’s funny TV ads and the brief warm glow that they got from reading about this year’s higher revenue figure is compensation enough for the plunge in the share price!

I think there’s a big flaw in the strategy

Is Purplebricks trying to follow the Amazon strategy? The US-based mega-company started off as an online bookshop and rapidly grew to sell just about everything. Famously, the company paid scant attention to profitability and focused on growing market share. For many years, Amazon remained loss-making but became profitable in the end after growing into a huge business.

But there’s a big difference between the two companies, in that Purplebricks is operating in a dreadful sector. Estate agency is notoriously cyclical and tied to the fortunes of the property market. I remember in the eighties, one particular downturn led to the call “retrain estate agents!” My view is the property market looks dangerous and I see Purplebricks as being in a precarious position.

Cyclical companies ‘should’ be making hay while the sun shines. So, right now, Purplebricks should be stuffing its bank account with cash from strong incoming cash flow. That’s because it will need it to survive the next downturn in the market, the possibility of which stands over the firm like the Grim Reaper, in my view. Sadly, the firm is doing the opposite.

I’ve run out of space, but you can read the rest of today’s report from the company here, for what it’s worth. Needless to say, I’m continuing to avoid the stock, at least until the operating loss starts to reduce.

The post Is Purplebricks a turnaround ‘buy’ or on borrowed time? appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any share 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.

While some of this will be due to the general bounce in markets in 2019, I suspect investors continue to be enticed by the firm’s simple business model and fairly predictable earnings stream. 

Today, the mid-cap announced a 7% increase in revenue in the year to the end of March (to a little over £125m) as a result of a rise in occupancy and rates at its 99 units.

This was regarded as positive by executive chairman Nicholas Vetch, especially as “activity levels on the final quarter were impacted by consumer uncertainty” with regard to Brexit. Adjusted pre-tax profit came in 10% higher at £67.5m. 

Thanks to last year’s placing, Big Yellow has £65.3m to build new units. It acquired seven sites for development in London and the South East over the last year, bringing its pipeline to 12. 

This is expected to provide “a steady increase in capacity over the next few years” and “make a significant contribution to future revenue growth,” according to the company.  The firm continues to target an occupancy rate of 90% at its sites. 

Dividends are also growing nicely. This morning’s 6% increase to the final dividend (16.5p) brought the total payout for the year to 33.2p, giving Big Yellow a trailing yield of 3.1% at the current share price.

You can get more elsewhere but the growth in demand for rental accommodation (particularly in the capital), coupled with the tendency of many to hoard rather than throw away, leads me to believe these cash returns are likely to continue growing.

Big Yellow’s stock trades on 25 times forecast earnings for its new financial year. That’s undeniably expensive and I’d much prefer to begin building a position on any general market weakness.

Notwithstanding this, I’d be far more likely to buy the FTSE 250 constituent over something like Purplebricks (LSE: PURP).

Back-tracking

Like many of my Foolish colleagues, I’ve been bearish on the online estate agent for some time. Last July, for example, I remarked that the company’s desire to enter overseas was risky since the business model was still far from proven in the UK. Recent news from the company appears to have borne this out.

Earlier this month, it was announced that Purplebricks would be leaving the Australian market and that its presence in the US would be “materially scaled back” with a huge reduction in marketing spend. 

Put simply, things haven’t gone as well as expected. Cue the departure of founder and CEO Michael Bruce and a further dive in the share price.

While some might see a bargain at this level (97p), I’d caution those tempted to invest to question whether they’re anchored to the company’s former value. The promotion of former vice-president of sales, Phil Felice, to interim CEO in the States, does little to suggest it will ever reach these heights again. 

It may be a market leader, but the fact that people are expected to pay (albeit cheaper) fees to Purplebricks, regardless of whether their property sells, isn’t inviting in a subdued market. 

And without clarity on our EU departure, I can’t see things changing anytime soon.

The post Forget Purplebricks. I think this FTSE 250 income and growth stock is a far better bet appeared first on The Motley Fool UK.

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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.

Given that Woodford is one of the largest shareholders in the company this is bad news for the portfolio manager. So, what’s gone wrong at Purplebricks?

International expansion

Taking a closer look, it’s clear that one of the problems with the company is that it has tried to grow too quickly. In recent years, it has spent millions of pounds attempting to expand into the US, Australia, and Canada and this has backfired spectacularly.

For example, in the US, Purplebricks was spending $15,000 in marketing per customer according to some analysts, yet listing fees were just $3,600. It doesn’t take Einstein to work out that those figures are alarming. Meanwhile, in Australia, the group tried to use the same business model that it has used here in the UK. Yet the two property markets are very different. While most houses are sold by private sale in the UK, in Australia the majority of houses are sold by auction, so Purplebricks’ model didn’t work.

Realising that its expansion strategy wasn’t working, Purplebricks has now said that it will be pulling out of the Australian market as well as launching a strategic review of its US operations. Additionally, founder and CEO Michael Bruce has stepped down with immediate effect. All in all, Purplebricks appears to be in a state of disarray and that’s reflected in the share price.

Risky stock 

However, the substantial fall in the share price doesn’t surprise me. While I’ve said in the past that I thought Purplebricks’ disruptive business model looked interesting, I also said that the stock was a risky play, as not only is the group unprofitable, but the stock has also had a sky-high valuation in the past. For example, when I last covered it in late 2017, its market cap was close to £1bn! For this reason, I said I’d be steering clear.

As I often stress, when it comes to growth stocks, I think it’s much safer to focus on companies that are already profitable. I’ve found that by focusing on growth companies with track records of profitability, you’re less likely to experience big losses.

Avoiding Woodford’s fund

Going back to Neil Woodford, Purplebricks is a great example of why I am avoiding his fund at the moment. Examining the list of holdings in Woodford’s Equity Income, the fund just looks too risky to me, as there are many companies within the portfolio that are not yet profitable. Ultimately, that’s not what I’m looking for in an equity income fund. In that type of fund, I want to see blue-chip stocks that pay reliable dividends.

The post Purplebricks shares: Neil Woodford just suffered another disaster appeared first on The Motley Fool UK.

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Edward Sheldon has no position in any 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.