Are AstraZeneca plc, Purplebricks Group plc and Hargreaves Lansdown plc doomed to fail?
The outlook for online estate agency Purplebricks (LSE: PURP) is highly uncertain at the present time. Even if the Bank of England adopts an increasingly loose monetary policy, it now seems likely that the UK economy will experience a slowdown in growth at the very least, with a recession being possible.
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The effect of this on housing transactions could be severe. Job insecurity may trump low borrowing rates to send house prices downwards. In such a scenario, many people may decide to put off house purchases in the hope of obtaining a lower price further down the line. Similarly, fewer sellers of property will emerge since their realised price will be lower than current levels.
The effect of low transactions on any estate agency would be significant, but it's likely to hurt Purplebricks to a larger extent than many of its rivals. That's because it's a low cost/high volume operator and so its business model may not adapt well to a challenging UK housing market. While not doomed to fail, there may be better places to invest than Purplebricks right now.
High valuation
Similarly, the outlook for Hargreaves Lansdown(LSE: HL) is also uncertain. As mentioned, a UK economic slowdown could hurt employment prospects for a large number of people and this could cause demand for investment-related products to come under pressure.
This could cause Hargreaves Lansdown's already generous valuation to be slashed. For example, it trades on a price-to-earnings (P/E) ratio of 34.5, which is more than twice that of the wider index. Although Hargreaves Lansdown has a strong track record of growth and is expected to record a rise in earnings of 9% in the current year and 10% next year, such a high valuation given its uncertain longer-term prospects is difficult to justify. Therefore, while it's not doomed to fail, the 17% fall in its share price since the start of the year could continue.
Pipeline power
While AstraZeneca(LSE: AZN) looked to be in a bad way a few years ago, its strategy has turned the business around so that it now looks set to be a major success story. Certainly, profit is expected to fall over each of the next two years. However, beyond that AstraZeneca's pipeline is due to make a positive impact on its financial performance, which could act as a positive catalyst on the company's share price.
Furthermore, AstraZeneca has the balance sheet and cash flow to withstand further major M&A activity. This means that its pipeline is likely to improve even further and could bring a return to positive bottom-line growth sooner than the market is currently pricing-in. Although AstraZeneca's shares are now trading 15% higher than they were at the time of the EU referendum, they still yield 4.4% and this indicates excellent value for money.
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Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended AstraZeneca and Hargreaves Lansdown. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
