I confess I dislike the latest ads from Purplebricks Group (LSE: PURP) so much I mute the TV whenever I see them, but I try not to hold that against the company as an investment.
There’s no denying that the stock has rewarded early investors very well. The price has more than trebled over five years, but since a peak in July last year it’s lost more than 35%.
I’m really not a follower of share price charts — but I do get a little twitchy when I see a certain growth share pattern emerging:
Everyone piles in, keen not to miss the next big thing. The share price soars, then reaches a peak and starts to fall back a bit. Next we have a second wave of buyers who push it back up, only to see a subsequent decline that typically continues for some time.
Risky stage?
Purplebricks is at the point when that second peak has faded, and the price is now lower than the intermediate dip. Anything could happen tomorrow, of course, but I’ve seen this same thing followed by steady decline so many times that it’s enough to keep me away.
Monday’s news of a “strategic investment from Axel Springer of approximately £125 million including a £100 million subscription for new shares” offered a boost to confidence, with the cash to be used partly for the firm’s rollout in the US. But the market didn’t really respond, and I can’t help wondering if we could be seeing an overstretched expansion plan a little too early.
I’ve previously offered other reasons for my bearishness on Purplebricks, and it remains a sell for me.
Blue sky
The other Neil Woodford stock I wouldn’t touch right now is IP Group (LSE: IPO), which released full-year 2017 results on Thursday.
The company, which invests in a portfolio of early stage businesses built on research from its partner universities, reported net portfolio gains of £94.2m, up from £6.5m in 2016. Reported net assets rose from £768.7m to £1,508.5m, which also seems impressive, and the firm even recorded a profit for the year of £53.4m (from a 2016 loss of £14.8m).
So what don’t I like about it? For one thing, I’m greatly disturbed by a very critical analysis of the company unearthed by my colleague G A Chester. If the opinion offered by J Capital Research is correct, that IP Group shares are worth no more than 75p, then buying at 116p (at the time of writing) could be a big mistake.Â
Buy what you know
Two other things keep me away too. Firstly, the diversity and the innovative nature of the firm’s investments mean I really don’t understand enough to evaluate them properly — or properly understand IP Group’s accounts. In fact, very few investors will be able to, and that means I’d largely be investing blind — and that’s something I just don’t do.
The other thing is that I just don’t go for unquantifiable ‘jam tomorrow’ blue sky investments these days. I did occasionally in the past, but my reliance is increasingly on investments where I can see solid earnings and healthy dividends today, and future profits where reasonable estimation is possible.