However, I also noted that there were a few issues that concerned me. Kier’s high level of debt was one. Analysts’ earnings downgrades were another. So, I wasn’t prepared to rate Kier shares as a ‘buy’.

In hindsight, that was the right decision. Since my article, the shares have fallen from 78p to 50.6p – a decline of 35%. So, why has Kier’s share price fallen recently? And what’s my view on the stock now?

Why has Kier’s share price fallen?

One reason the share price has continued to fall recently is that full-year results published on 17 September were quite disappointing.

These results, which the group said reflected “nine months of good strategic progress and three months’ impact of Covid-19,” showed a drop in operating profit of 52% and a fall in adjusted basic earnings per share (EPS) of 50%. They also showed an 86% increase in net debt to £310.3m.

“This financial year has been a difficult one for the group,” commented CEO Andrew Davies. Looking at these results, it’s clear that the company has been impacted significantly by Covid-19.

Another reason Kier’s share price has fallen is that City analysts have continued to lower their EPS forecasts for this year. Over the last month, for example, the consensus EPS forecast has fallen 11% to 33.3p. Earnings downgrades tend to put downward pressure on a company’s share price.

My view on Kier shares now

In light of the recent developments here, I see Kier shares as quite risky at present.

One issue that concerns me is the high level of debt. At 30 June, Kier had total equity on its balance sheet of £240.8m. So, its net debt-to-equity ratio (£310.30/£240.80) is 1.3. That’s a little too high for my liking.

I’ll point out that Stockopedia gives Kier an ‘Altman Z2’ score (this is a measure of financial strength) of -1.65. This indicates a ‘serious risk of financial distress’ within the next two years.

Another thing that concerns me a little bit is that no directors have purchased Kier shares in recent months. Even when the share price fell below 50p, no insiders stepped up to buy shares. This suggests that Kier shares may not be a bargain even at the current low price-to-earnings (P/E) ratio of just 1.5.

All things considered, I think the shares are best avoided for now. They may rebound at some stage. However, in my view, there is still risk to the downside.  

Why take a huge risk on Kier shares when there are so many great companies you could invest in right now?

The post Kier’s share price has tanked. Here’s my view on the stock now appeared first on The Twelfth Magpie.

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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.

Lately, bargain hunters have been busily backing construction and services company Kier Group (LSE:KIE), one of Neil Woodford’s most notorious stock picks (and boy did he have a few). At one point, the heavily shorted stock looked set to go the same way as other high-profile outsourcing specialists, the now defunct Carillion and Interserve. It’s still standing though, and the Kier share price trades at shockingly low levels.

Just three years ago, the group’s stock stood proud at around 1,400p, only to lose more more than 95% of its value as it fell to a low of around 60p last summer. It has picked up slightly to trade at around 13op today, after climbing an impressive 60% in the last month, rewarding risk takers who got their timing right.

High rewards, high risks

As ever, there’s no guarantee the Kier share price will repeat this outperformance. Anybody who buys it today must brace themselves for serious volatility in the weeks and months ahead. Are you up for that?

Kier was caught by the Carillion fallout, which made banks reluctant to lend. That forced management into emergency mode, including a widely-snubbed £264m fundraising in December 2018. The company slumped to a pre-tax loss of £245m last year, down from a profit of £106m the year before, while debts rose alarmingly.

After a management clear out, new CEO Andrew Davies has fast-tracked his turnaround plan, cutting jobs and suspending dividend payments. He’s also been offloading non-core operations, such as homebuilding business Kier Living, cutting jobs, and seeking £60m of cost savings. Debt remains a major worry and will for some time.

The leaner company now aims to focus on infrastructure, regional construction, utilities and road maintenance. It boasts a decent order book, including high-profile contracts for multi-billion pound construction projects, notably Hinkley Point C, Crossrail and HS2, and continues to win new contracts. So would I buy it?

Kier we go?

My experience of companies in recovery is that the fightback is typically longer and harder than you think. You get that early share price spike, a kind of mini relief rally as the danger of total collapse is averted. But then the hard work begins. Kier Group is at the start of that phase.

Its success partly depends on the UK economy. Some have cited Brexit as a worry, but that may be a headwind, with new chancellor Rishi Sunak under pressure to greenlight an infrastructure splurge, while HS2 has been approved.

Kier Group stock is dirt cheap, trading at just 2.27 times earnings, which some will find hard to resist. It has a long road ahead. You should only invest if you’re prepared to be patient, and understand all the risks. On those terms, it could offer risk-seekers an exciting ride.

The post The Kier Group share price is up 60% in a month! Here’s what I’d do now appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Harvey Jones 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.

The former has lost 95% of its value in just 18 months due to a major accounting error, savers rushing to withdraw their cash and a poorly received (and subsequently pulled) bond issue. To say that the challenger bank finds itself challenged is putting it lightly.

Kier’s recent performance is equally shocking. Over the last 12 months, the share price has fallen 86% for many of the same reasons: an emergency cash call, an accounting error, and a profit warning. Restructuring costs remain a drag and Brexit continues to cast a shadow over the property, residential, construction and services firm.

With things looking so bleak, it’s natural that some should try to find a way of profiting. As I type, both Metro and Kier rank among the most shorted stocks on the London Stock Exchange. In other words, investors are making sizeable bets that the share prices of both are likely to fall further. 

Regardless of what you feel about the ethics of short-selling, it can be very lucrative. Many of those that wagered against market casualties like Carillion and Debenhams made a lot of cash in the process. That’s not to say it isn’t high-risk — losses are technically infinite if they get their calls wrong and share prices rise.

There is, however, another business that’s more hated than either Metro and Kier. 

The silver medal goes to…

With 9.7% of its stock currently being shorted, FTSE 250 member and oil services provider Wood Group (LSE: WG) ranks second in the leaderboard and above both Kier and Metro. Worryingly, the only company with more short positions hanging over it is Thomas Cook. 

At first glance, this all seems a bit harsh, especially when you take the company’s recent interim results into account. Back in August, the Aberdeen-based business revealed a $13m profit over the first six months of 2019 compared to a $52m loss over the same period last year (despite logging a 2.6% decline in revenue to $4.8bn). Wood also maintained its outlook for the full year and stated that it was “well-positioned for growth across the energy and built environment markets” beyond this.

Unfortunately, the market just doesn’t seem interested, with the fall in Wood’s share price over the last year showing no signs of abating just yet. Arguably the biggest concern is the amount of debt the company still carries.  

Net debt stood at $1.77bn by the end of June, 14% higher than at the same point last year. And while the sale of its nuclear business for $305m is expected to reduce leverage once the deal is completed in Q1 2020,  it would appear some also have concerns about Wood’s limited exposure to the recovering offshore and liquid natural gas markets compared to rivals.

A price-to-earnings (P/E) ratio of just over eight might look cheap, but there’s certainly an argument for saying that even this valuation might come under review if the health of the global economy were to deteriorate. At 8.3%, the yield is one of the highest in the FTSE 250 but dividends are, somewhat ominously, barely growing.

The shorters have been wrong in the past — Ocado being a perfect example. Could they have got Wood Group wrong as well?

The post This FTSE 250 stock is even more hated than Metro Bank and Kier Group! appeared first on The Twelfth Magpie.

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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.

However, while the stock might seem like an undervalued gem, I think there are some severe problems with the business that need to be resolved before investors should even consider adding this stock to their portfolio. 

Cash is king

By far the most serious issue facing the business is, in my opinion, its lack of cash. For the financial year ending 30 June, the company reported a total cash outflow of nearly £150m. Granted, last year was a transition year for the group but, looking back over the past six years, cash generation has never been Kier’s strong point.

The firm’s financial statements show that between fiscals 2014-2019, it generated just under £480m of cash from operations, but spent £737m on Capex and acquisitions.

With so much cash flying out the door, it’s quite surprising Kier offered its investors a dividend. A total of £287m was paid out to investors between 2014 and 2019. 

Looking at these figures, I’m not surprised Keir has run into problems. What’s more worrying is the fact it doesn’t actually seem to know how much money it owes to creditors.

Back in June, the company announced that due to an accounting error, its net debt was £50m higher at the end of December 2018 than previously reported. With confidence in the group at an all-time low, Kier can ill afford to make these mistakes. 

No confidence 

The fact the company’s financial controls are so weak it doesn’t know how much money is owed to creditors is highly disconcerting. Investors need to know they can trust a firm’s financial statements when they are evaluating a business. If it doesn’t know it’s own numbers, what chance do investors have?

This is the primary reason why I’d avoid the Kier share price at all costs. While shares in the construction and outsourcing business might look cheap based on current City estimates, we just don’t know what’s lurking below the surface. 

If the company discovers more discrepancies on its balance sheet, management could be forced to announce a surprise rights issue or, even worse, declare bankruptcy.

Not worth the risk

In my opinion, it’s just not worth taking on this risk. Kier’s turnaround is only just beginning, and the firm still has a lot of work to do before management can claim to have steadied the ship. 

I would rather wait on the sidelines until it’s dealt with the worst of its problems and started to improve cash generation. That way, if the situation deteriorates, I won’t be left out of pocket. 

In the meantime, there are plenty of other companies out there that seem to offer a much more attractive investment proposition. 

The post Is the Kier share price finally worth a gamble? appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves owns no 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.

IG Group Holdings

Spread betting and CFD trading platform IG Group Holdings (LSE: IGG) is up 10% this morning after forecasting a return to revenue growth in full-year 2020.

Today’s first quarter results showed revenues flat at £129.1m, compared to the same period last year, but that’s more encouraging than it looks. The IG share price was hammered by tough new European Securities and Markets Authority (ESMA) restrictions on the trading of CFDs and binary options, designed to protect the unwary. Today’s Q1 revenue figure was 11% higher than the quarterly average after the rules came and and management said this demonstrates its ability “to deliver revenue growth in a more restrictive regulatory environment.”

Management is now targeting annual revenue growth of 3-5% over the medium term in its core markets, which has lifted spirits. I’m glad to say I recently tipped the FTSE 250 stock to fight its way back, saying its generous 7% yield should give investors ample reward while they wait.

Would I buy after today’s price surge? IG isn’t exactly a bargain, trading at a forecast 14.9 times earnings. But the forward yield is still a whopper at 7.5%, albeit with cover of just 0.9. The platform tends to benefit from volatile stock markets, which tempts customers to trade, and we can expect that situation to continue over the next few years. This stock could therefore offer protection from any stock market storms ahead of us.

Kier Group

IG’s worries are nothing compared to construction and infrastructure services company Kier Group (LSE: KIE), which has been in mortal peril with its share price collapsing 90% in the last year. It’s another of Neil Woodford’s disastrous stock picks, and some even speculate its share price could ultimately head for zero.

It is up 2.5% today to 137p, despite reporting a £245m loss in its full-year 2019 results, down from a £106m profit a year earlier. Earnings per share fell from 89.3p to a loss of 158.5p. On a more positive note, revenues slipped only slightly, from £2.24bn to £4.122bn.

Chief executive Andrew Davies joined in April, several months after the group’s £250m rights issue, to strengthen the balance sheet, and said the firm was building firm foundations after “a difficult year, resulting in a disappointing financial performance.” He highlighted a new management team and a strong order book, and said this reflects the strength of the underlying business.

The sale of homebuilding business Kier Living is progressing well as the group reshapes itself to reduce indebtedness and “restore Kier to robust financial health.”

For those who can’t resist a bargain, the Kier Group share price is trading at an incredibly cheap forward valuation of 2.9 times earnings. But wafer-thin operating margins of just 2.2% demonstrates the challenge here. It remains highly risky but, as ever, those who want to enjoy the full force of any recovery need to get in before it happens, rather than afterwards.

The post Got £1,000 to invest? I think these 2 troubled companies could make amazing recovery plays appeared first on The Twelfth Magpie.

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Harvey Jones 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.

Kier we go

At the time of writing, the Kier share price trades at 112p, a fraction of its year-high of 1,129p. And that’s after factoring in the massive 45% rise in its value over the last month. Is this the start of the recovery or a supersized dead cat bounce?

New CEO Andrew Davies is working hard to save Kier’s skin, announcing in June 1,200 job losses (out of 19,000) in a bid to cut its debt pile and avoid the fate of competitors Carillion and Interserve. 

He also plans to sell its homebuilding business Kier Living, although this may raise less than originally hoped, while shutting or selling its recycling and rubbish-processing operations. The new slimmed down business will focus on four key groups – infrastructure, regional construction, utilities and road maintenance.

All this and HS2

The recent bounce is tempting, but don’t fool yourselves, putting this business right is set to be a slow process. It could be years before we see any meaningful recovery, especially with UK GDP shrinking and the global economy set for a turbulent spell. I almost don’t even have to mention the Brexit word here.

And two years ago, Kier Group was awarded £1.4bn of HS2 contracts, but this could be threatened as Prime Minister Boris Johnson places the UK’s single biggest transport investment project under review.

Kier’s market cap has shrunk to just £182m, against debts of £167m as of 30 June. At the start of this month, it said its debt situation has improved slightly, and you can date its recent share price surge to that relatively upbeat post-close update, even though it announced that turnover would drop by £100m in 2019.

Living, going, gone

Management said it has also received received “significant interest” in Kier Living and has commenced the sale process. If it secures a decent price for that, the share price could get a further lift.

Kier is looking to deliver annual cost savings of around £55m from 2021, and City analysts see a potential pick-up in the financial year to 30 June 2020, when they forecast earnings per share will rise 13% (after this year’s 49% drop). Don’t expect any dividends though, they’ve been cancelled this year and next.

Very risky buy

Kier stock now trades at just 1.9 times forecast earnings, a tiny fraction of the 15 times earnings generally seen as offering fair value. You can see why investors have piled in on the first sniff of positive news, although in my experience, sudden surges upwards can quickly reverse.

For now, Kier looks as if it can survive, and that is in itself a victory. Brave investors may want to monitor this stock and look for a buying opportunity. If you are tempted, be prepared for a bumpy ride.

The post The Kier share price is up 45% in a month! Here’s what I’d do now appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Harvey Jones 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.

However, the update does give us some insight into how the business is faring in the current market environment. According to the management report, trading at the group’s key Infrastructure Services and Buildings divisions has remained “resilient” but turnover for the 2019 financial year is expected to be around £100m lower than the level reported for 2018.

The update notes this decline in revenue is due to “property and land-led transactions which did not complete in June 2019.” Management believes this will have an impact on the group’s bottom line “broadly in line with its historic gross margins.” 

According to my research, the company has historically reported a gross profit margin of around 10%, which implies the drop in revenue will cost the group £10m in gross revenue for fiscal 2019. Analysts had been expecting Kier to report a net profit of £102m for the 2019 financial year, so this drop in revenue will have a significant impact on the bottom line.

Debt under control

On a positive note, Kier’s report tells us the company seems to have got its debt problem under control. Its average month-end net debt for the 2019 financial year was £422m, that’s at the bottom end of previous guidance of £420m-£450m.

That said, as I’ve noted before, Kier’s debt situation could be worse than reported because the company has historically had a lot of off-balance-sheet obligations. So while it may look as if the firm is heading in the right direction, I’d like to see a further, meaningful decrease in the average per month-end debt figure before I can trust the balance sheet.

Moving in the right direction

Overall, the latest trading update from Kier seems to suggest the enterprise is making progress drawing a line under past mistakes. While the decline in revenue is disappointing, the debt situation appears to be under control. On top of this, the group says it has received “significant interest” in Kier Living, its housebuilding division, which it’s trying to offload to reduce debt. The sale of this business would be a significant step forward.

Nevertheless, until the company shows us it has made concrete progress on its plans to restructure, strengthen its balance sheet, and return to growth, I’m going to stay away from the shares. There’s still plenty that could go wrong over the next 12 to 24 months as management tries to stabilise operations. Any move in the wrong direction could end up with the group having to ask shareholders additional funds.

All in all, I reckon it’s better to watch from the sidelines and wait until Kier’s situation improves before investing.

The post Is it time to buy the Kier share price after today’s positive update? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves owns no 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.

According to the City’s current figures, the stock is trading at a forward P/E of just one.

I will admit, even I’m attracted to this bargain-basement price, but is the stock worth buying at current levels, or is it a value trap?

Bankruptcy ahead?

Looking at Kier’s valuation, it seems to me as if the market is fully expecting this business to go bankrupt soon. With any business, there’s always a chance that it will run out of money, but it seems as if Kier is funded for at least the next year.

Even though Kier struggled to raise emergency funding via a £264m rights issue in December, chief executive Andrew Davies believes the company’s average monthly net debt will hit a maximum of £630m this year, well within debt facilities of £920m. As the group is also looking to offload some of its non-core business divisions, asset sales will also bolster its financial position.

However, as I have explained before, Kier has a lot of off-balance-sheet debt, which management tends to overlook when publishing net debt figures. Because the company doesn’t publish these figures, it is difficult to tell if this debt is going to be a problem or not. As most of the borrowing is in joint ventures, you could argue that’s it’s not relevant to the business, and in this case, Kier appears to be financially stable.

That being said, do I think there is a chance to Kier might still have to ask shareholders for more money at some point in the near future? There’s no getting away from the fact that the company needs to strengthen its balance sheet.

Earnings rebound 

If you believe Kier has the financial resources to persevere with its restructuring efforts and stave off bankruptcy, the biggest threat facing the business is eliminated.

This brings me back to the company’s growth and valuation. At the time of writing, City analysts are expecting the firm to report earnings of 67p per share for 2019. If Kier can hit this target (and it is a big if) then the stock is trading at a forward P/E of 1.1.

Even though the chances of the company hitting this target are slim, if it does, shareholders could be well rewarded. With the rest of the construction & engineering sector trading at a forward P/E of around seven, shares in Kier could be worth as much as 469p if it returns to growth. 

The reward is better than the risk 

With a potential upside of 500%, if you’re comfortable with the level of risk here, it might be worth taking a small position. Although, I should caution that this stock is only suitable for the most risk-tolerant investors.

Even though Kier looks well funded, there’s still a high chance that it could collapse, which will wipe out shareholders. However, this risk of a total capital loss is more than offset by the potential five-fold return in the best case. 

The post Is it time to buy the Kier Group share price? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves owns no 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.

Could it be argued that Kier Group (LSE: KIE) and Purplebricks Group (LSE:  PURP) are a couple of such shares being unfairly treated by the trading community? These particular property stocks have lost 90% and 67% of their value respectively over the past year, a descent that leaves Kier for one dealing on a prospective earnings ratios of 1.5 times.

The question is, then, do these low ratings represent a great buying opportunity for against-the-grain investors? And if so, which is the better selection?

On the brink?

A share that carries a valuation as low as Kier’s is practically loaded with flashing red lights. Companies trading on these kinds of multiples are prime targets for hopeful punts, but what’s the sense of making such an investment when there’s a strong chance of it going bust?

And there’s certainly a strong chance of this particular small-cap dropping off the edge of the planet in the not-too-distant future.

Let’s face facts: Kier is absolutely swimming in debt. Take no notice of what the business’s balance sheet says as it looks as if it has more than a billion pounds worth of financial obligations for which it is struggling to pay.

Another rights issue could be just around the corner, but given the company’s trouble to attract fresh investment last time around — just 38% of shares were taken up during the autumn fundraising — and Kier’s worsening trading performances since then, I’d be amazed to see investors riding en masse to the rescue if called upon again.

A better buy?

The fact that Kier Group is trying desperately to avoid going bust leaves Purplebricks, at least in the context of this article, as the victor by default.

But the online property marketing play has considerable troubles of its own as the cost of its ambitious international expansion programme weighs. We only need to look at Wednesday’s disastrous trading update in which it advised that operating losses ballooned to £52.3m in the 12 months to April 2019 from £27.8m a year earlier.

Once seen as the road to explosive long-term profits growth, Purplebricks’ aggressive move into other global territories has proved a disaster, heaping enormous stress on the balance sheet — cash on the books more than halved last year to sit at £62.8m as of April — and forcing it to eat a large slice of humble pie in the process.

The company announced plans to pull out of Australia in the spring and this week declared its intention to slink out of the US too, following on from those latest results. Its travails on foreign shores are only one part of Purplebricks’ problems, though, as with the Brexit issue remaining far from resolved, the cyclical slowdown in the UK homes market threatens to drag on.

So whilst on safer ground right now, I consider this property play — like Kier Group — as one to avoid like the plague right now. You’d be much better off deploying your hard-earned investment cash elsewhere.

The post Kier Group vs Purplebricks: which is the best property stock to buy today? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Royston Wild 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.

While it’s disappointing for any investor with shares in one or both of the companies, it brings to light the importance of having a diverse portfolio of stocks. Failing to do so could mean an investor is exposed to a high degree of company-specific risk that ultimately causes a significant amount of volatility over the long run.

Reduced risk

Although all investors would love to be able to pick just a handful of top-performing shares to hold within a portfolio, the reality is that poor performance can be exceptionally difficult to accurately and consistently predict.

Certainly, some risks can be identified. They may include weak consumer confidence for retail shares, or the prospect of a challenging economic period that may impact negatively on a wide variety of sectors.

But in some cases, profit warnings and financial challenges are unforeseen by even the most experienced investors. As such, it makes sense to reduce company-specific risk, so if one holding within a portfolio experiences a declining market valuation, its impact on the wider portfolio is somewhat limited.

Risk/return

Of course, there will always be an element of risk from investing in the stock market. It’s impossible to diversify away market risk, which is the prospect of market cyclicality affecting a portfolio’s valuation, without buying other assets.

But, over the long run, indexes such as the FTSE 100 and FTSE 250 have always recovered from downturns to post higher highs. Therefore, investors may wish to focus on reducing company-specific risk, rather than market risk, should they have a long-term time horizon.

Furthermore, having more stocks within a portfolio may allow an investor to capitalise on a wider range of growth trends within a number of different sectors and regions. Since there are a variety of appealing trends and industries at present that could offer strong growth prospects over the long run, now could be a good time to consider increasing a portfolio’s diversity.

Accessing shares

With the cost of buying and selling shares having fallen significantly in the last couple of decades, owning a wide range of stocks is becoming cheaper. For smaller investors who wish to reduce their commission costs even further, the regular investing services offered by online sharedealing providers could cut the cost of buying shares to as little as £1.50 per trade.

Doing so could allow you to limit the impact of poor performances such as those recorded recently by Kier Group and Thomas Cook. With a rapidly evolving economic outlook, there are likely to be other shares that significantly underperform the wider index over the coming years. Although diversification may not help you to avoid them completely, it could mean their performances do not destroy your portfolio’s overall growth trajectory.

The post Kier and Thomas Cook shares: one lesson all investors should learn from their 88% slumps appeared first on The Twelfth Magpie.

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Peter Stephens 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.