Investors go wild for stocks like Purplebricks Group (LSE: PURP) that crash into a fusty market like estate agency and profit by causing maximum disruption. No wonder, given that its share price is up a mind-boggling 209% in the last 12 months.
The Purp
The big question as ever is whether newcomers have left it too late to invest, and whether old hands should take their profits. Purplebricks published its final results for the year ended 30 April 2017 and the initial response has been cool, with the share price dipping 1.32% at time of writing.
Success breeds high expectations, which can become hard to fulfil. If most companies posted a 151% rise in group revenue to £46.7m from £18.6m in the full-year 2016, as Purplebricks has just done, investors would have gone crazy. Clearly, they expected more. Other figures would also have dazzled under normal circumstances, such as a 132% rise in UK revenue to £43.2m and a first full-year operating profit and adjusted EBITDA of £1.7m, turning round last year’s £9.7m loss.
Ton of bricks
Average income per UK instruction for the UK climbed 14.8% to £1,035 while Purplebricks sold and completed on over £5.8bn of UK property transactions, with a further £3.69bn in the pipeline. Its online market share jumped from 62% to 72% and the balance sheet is strong with net cash at £71.3m.
Group chief executive Michael Bruce said its Australian operations are following a similar growth trajectory, and it launches its US assault in California in the second half of the calendar year. The group also has UK revenue expectations for 2018 at some £80m, nearly double 2017. City forecasters reckons that could near £130m in 2019.
That would put the company on a forecast price/earnings ratio of 156 times, which is 10 times what is normally seen as fair value. However, there is nothing normal about PurpleBricks and here’s an example: while writing this, the early-morning reversal has turned into a gain of 3.88%. The market clearly believes the purple patch can continue. Now it just needs to crack the US.
Red terror
Technology services provider Redcentric (LSE: RCN) is in a very different position. Its share price plunged 62% last November when it fired its chief financial officer after discovering multi-year accounting misstatements that will cost a minimum of £10m to rectify, and has flatlined ever since.
Today’s preliminary announcement for the year to 31 March 2017 reports the company trading in line with revised expectations after a challenging year, with its finance function and processes materially strengthened. The company also hailed strong sales and recurring business performance, with a good sales pipeline.
The colour purple
Revenues totalled £104.6m, of which £90.2m is recurring revenue, with adjusted EBITDA of £17.3m and adjusted EBITDA margins of 16.5%. It suffered a £3m operating loss from operations, with a statutory earnings per share loss of 1.6p, reducing EPS to 4.45p. Net debt is £39.5m. It also said that customers and banks remain supportive, while it is cooperating with the Financial Conduct Authority operation.
The recent meltdown has no doubt coloured investor views with the stock down 1.91% so far. Why bet on Red when you can put your money on Purple?