Investors go wildfor stocks like Purplebricks Group (LSE: PURP) that crash into a fustymarket like estate agency and profit by causing maximum disruption. No wonder, given that itsshare price is up a mind-boggling209% in the last 12 months.
The Purp
The big question as everis whether newcomershave left it too late to invest, andwhether old hands should take theirprofits. Purplebricks published its final resultsfor the year ended 30 April 2017 and the initial response has been cool, with the share price dipping1.32% 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 roundlast years 9.7m loss.
Ton of bricks
Average income per UK instruction for the UK climbed14.8% to 1,035while Purplebrickssold 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 at71.3m.
Group chief executive Michael Bruce said its Australian operations are following a similar growth trajectory, and it launchesits US assault in California in the second half of the calendar year. The group also has UK revenue expectations for 2018 atsome 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 heres an example: while writing this, the early-morning reversal has turned into a gain of 3.88%. The market clearly believesthe purple patch can continue. Now it just needs tocrack the US.
Red terror
Technology services provider Redcentric (LSE: RCN) isin a very different position. Its share price plunged 62%last November whenitfired its chief financial officer after discoveringmulti-year accounting misstatements that will cost a minimum of 10m to rectify, and has flatlined ever since.
Todays preliminary announcement for the year to 31 March 2017 reportsthe 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 which90.2mis recurring revenue, with adjusted EBITDA of 17.3mand 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.
Therecent meltdown hasno doubt coloured investor views with the stock down 1.91% so far. Why bet on Red when you can put your money on Purple?
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