But though that’s highly desirable from a marketing perspective, it can be anathema to those trying to find a bargain share. And I feel sure that this very high public profile has drawn far more investors in to buying the shares than we’d otherwise see, and that has pushed prices up to levels that I find scary.

Do you remember online fashion retailer ASOS? Its shares peaked quickly too, but they crashed and they’re still lower today than back in February 2014.

Where’s the profit?

There are no Purplebricks profits expected before 2019, and even then the City is only predicting a modest pre-tax profit of £6.6m — with the shares at 371p today, we’re looking at a forward P/E of 206, two years out. And that’s after the price has fallen back a bit — at August’s peak of 525p, that P/E stood at nearly 300.

Now, I know a huge P/E in the first profitable year can be misleading, but I turn to my second biggest concern — how much of a barrier to entry for an online company is there? With relatively little in the way of material infrastructure needed to set up a similar operation, I don’t actually see a lot — there are no expensive warehouses or distribution chains like ASOS needs (and even there, Boohoo.Com is hot on its heels).

Two more years before any profit, and a whole real estate sector that’s surely looking at the model and planning some moves.

Good company, first-mover, great marketing, too expensive.

Pharma upstart

Allergy Therapeutics (LSE: AGY) is a pharmaceutical group specialising in allergy vaccines, and it released full-year results Thursday. 

Earnings have been a bit erratic of late, to say the least. But there are some core trends that really make me think I’m looking at a company with a focus on the long term and not on grabbing short-term attention — in particular, the firm has achieved a “10% compound annual growth in net sales over 18 years.“

The year to June 2017 resulted in a 32% rise in revenue (15% at constant currency) leading to a 72% hike in operating profit, and a 13% gain in European market share.

Chief executive Manuel Llobet spoke of “continuing growth and progress on our pipeline“, saying he expects “further good progress in the coming year.“

There’s some investor sentiment getting behind Allergy Therapeutics too, with the share price having gained 64% in the past 12 months to today’s 32.75p. Invesco Perpetual, formerly managed by Neil Woodford, owns almost 6% of the stock, and I see that as an important vote of confidence.

The risk?

A possible downside to an investment here is that it would not expose us to the same diversification that is offered by many of the company’s fellows in the pharmaceuticals sector. And with the chance that big investments in narrowly-focused research areas can come to nought being sizeable, I don’t want to underestimate that risk.

But being focused on the specific field of allergy research (which is addressing an increasing problem in the 21st century), the potential rewards could be high.

On balance, I see Allergy Therapeutics as a risk worth taking.

The post Why I’d sell Purplebricks Group plc to buy this growth stock appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo.com. 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.

Allergy Therapeutics’ revenue increased by 19% at constant currency to £51.5m in the year to 30 June. This was aided by a rise in market share to 12% in the company’s main European markets. This was up from 10% in the previous year and shows that Allergy Therapeutics’ strategy is progressing well.

The company’s core business showed an 11% increase in operating profit to £4.4m. This excludes money spent on R&D, which amounted to £16.2m. This was up significantly from the £3.1m which was spent in the prior year, reflecting the investment in PQ registration and pipeline. With Allergy Therapeutics having a strong cash balance of £23.4m at year end, it’s in the position to continue to invest heavily in product development.

Looking ahead, Allergy Therapeutics has significant growth potential. It’s due to remain lossmaking in the next couple of years but due to its strong balance sheet, its financial standing seems to be sound. Therefore, it could deliver upbeat share price performance, although it remains a relatively risky buy at the present time.

Lower risk?

For this reason, buying a lower risk and larger sector peer could be a sound move. Shire is better diversified than Allergy Therapeutics. This reduces its risk profile, while its combination with Baxalta provides scope for significant synergies over the medium term that could boost the company’s bottom line.

In fact, Shire is expected to increase its earnings by 87% in the current year and by a further 19% next year. This is a stunning growth outlook and despite this, Shire trades on a very appealing valuation. It has a price-to-earnings growth (PEG) ratio of just 0.7, which indicates that now is an excellent time to buy it.

One reason for Shire’s low valuation is concern among investors regarding the acquisition of Baxalta. There are fears that the two companies will not prove to be a good fit and that the synergies that are anticipated to be realised from the deal will disappoint. And as with any merger, there are concerns that the integration process will be lengthier than planned. This could cause Shire’s guidance to be downgraded.

However, Shire’s valuation includes a very wide margin of safety. This means that its share price could rise even if its profit growth is slightly lower than expected. And with it having wide geographical exposure as well as a very encouraging pipeline of new treatments, even if the integration process with Baxalta causes some short-term pain, the long-term prospects for the business are bright.

As such, and while Allergy Therapeutics could be worth buying for the long term, Shire has the better investment offering at the present time.

The post Do today’s results make this company a better buy than Shire plc? appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

However, stocks that offer less positively-correlated financial performance are arguably becoming rarer. That’s because the world continues to become more globalised, with countries now being highly interdependent and the policy decisions made by one major economy having a sudden and direct impact on the rest of the world.

That’s partly why the healthcare sector remains popular among investors. A number of its constituents are more heavily impacted by the patent boom and bust cycle rather than the business cycle. As such, they offer diversification potential and can deliver impressive share price returns even during uncertain times for the wider stock market.

Diversity diva

One notable business within the healthcare sector is GlaxoSmithKline (LSE: GSK). It offers a large amount of diversity through having three segments to its business, with pharmaceuticals, vaccines and consumer goods combining to create a relatively low-risk business that in the long run looks set to deliver strong profit growth.

A key reason for this is GlaxoSmithKline’s cost savings and impressive pipeline of around 40 potential treatments. With the company’s shares having a beta of just 0.9 and trading on a price-to-earnings growth (PEG) ratio of only 1.1, they offer strong growth, appealing value and excellent defensive prospects.

Stability star?

Also having a bottom line less positively-correlated with the wider economy is Consort Medical (LSE: CSRT). The contract development and manufacturing specialist is forecast to post a rise in its earnings of 11% in each of the next two financial years and with it having posted impressive net profit growth in the last three years, it seems to be a relatively consistent performer.

As with GlaxoSmithKline, Consort trades on a relatively appealing PEG ratio of 1.4 and with its shares having a beta of 0.3, they seem to offer a less volatile shareholder experience than the wider market, which could be a useful ally in the coming months.

Rewarding risk

Meanwhile, Allergy Therapeutics (LSE: AGY) has posted a share price rise of 22% in the last year while the FTSE 100 has fallen by 11% during the same time period.

Certainly, Allergy Therapeutics is a relatively high-risk play due in part to the fact that it’s expected to be lossmaking in both the current year and next year. However, with the pharmaceutical company having a cash pile of £33m, reporting a rise in revenue of 12% in its most recent results and having a beta of just 0.2, it may be worth a closer look for less risk-averse investors who are seeking to diversify their portfolios.

The post Why GlaxoSmithKline plc, Allergy Therapeutics plc and Consort Medical plc are a dying breed appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.