Why is AO’s stock price crashing?

The· AO (LSE: AO) Stock prices have lost 40% of their value since the beginning of the year. It is now about the same as the price in October 2020.

Why is this happening? Is this a big buying opportunity for me?

After making a £ 1 bet at Bolton’s pub, CEO John Roberts founded AO. As the original name suggests, the company sells appliances online. Currently a £ 1.2 billion giant with operations in the UK and Germany.

Trade-up of AO stock price

Let’s take a look recently Transaction renewal in 2009 From FTSE 250 Electric retailer.

According to the company, “Powerful performanceOver the last 12 months, 2 million new customers have been added. This is also “Significant increase in revenue, gradual change in profitability at both group and department level [and] Strong cash generation“. Covid-19 All in the form of a business loan without government assistance.

Revenues increased 62% overall to £ 1.66 billion, generating £ 57 million in net cash annually is £ 80.4 million better than £ 23.4 million in net debt in 2020.

The company’s German division, which was launched in 2014, is also expected to return to profitability this year. This is better news than 2019, when Roberts was forced to close its business in the Netherlands. He said at the time that the AO world could expand further internationally if the German model was proved.

Therefore, sales are strong, cash is solid, and it seems that experiments overseas are finally underway.

So why does AO’s stock price seem to be declining?

[fool_stock_chart ticker=LSE:AO]

From online to offline

AO’s share price quadrupled in 2020. This may be one of the reasons for the current decline. When the country resumes, online-only play will be overrated. Businesses saw strong demand as people were forced to stay indoors by the blockade across Europe. And Roberts is betting that online is now the dominant channel for customers, and the company’s market is “As a result, it changed forever“.

You can see why Roberts thinks this way. During the pandemic, my older parents bought online and started getting their purchases delivered. They are now directly aware of how easy and cheap it is. And there is no way for them to return.

But the focus of the world today is optimism. High streets, or rivals, are open.

Still, As a contrarian value investor, I see some new opportunities in this shift of focus in the market. AO’s share price may be temporarily at a disadvantage.

The risk of buying here is, in fact, that retailing hasn’t changed forever. “”I hope that it will continue to be a double-digit growth business in the future.“The CEO says. If sales fail to meet these fairly spectacular goals, AO’s share price can fall.

Another fly of the ointment is an increase in warranty plan cancellations mentioned in the January AO Q3 results. The business forecasts a temporary cash cut of around £ 15m. It’s a blow to profits. You will probably wait to hear the expected details of the full-year results scheduled for June 16, 2021. But I’m watching this carefully.

Tom Rodgers There are no positions in any of the listed shares. The Motley Fool UK does not have a position in any of the listed shares. The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, by exploring different insights, Better investors than us.

Why is AO’s stock price crashing?

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