Why AO World shares are friendless

Interactive investor's head of markets explains why the online electricals retailer has slumped today.

Relentless pressure in the retail space and the scale of investment in the business has resulted in a torrid time of late for AO World (LSE:AO.).

The reinstatement of the founder as chief executive has been well received and indeed the shares have seen a 9% hike in the last three months. For the most part, the strategy is clear, with a European presence receiving attention, the acquisition of Mobile Phones Direct adding options and the UK business holding up relatively well given the difficult economic backdrop. 

In addition, the last-minute surge of pay-outs prior to the PPI deadline in August could conceivably play into AO World's hands given another boost in consumer spending. 

Meanwhile, there are hopeful signs with regard to revenues both at home and abroad, even though these are not necessarily translating into profit at the moment.

Source: TradingView Past performance is not a guide to future performance

There are some exceptional charges darkening the figures, such as restructuring costs and the purchase of Mobile Phones Direct. Heightened capital expenditure has also been accompanied by pricing pressures as the company tries to tempt consumers through the digital door, whilst the general trading situation in Germany remains particularly challenging. 

The previously announced stockpiling measures ahead of Brexit received mixed reviews and, overall, AO World has not only swung to a pre-tax loss but has also moved to a net debt position, which renders the likelihood of a dividend payment unlikely in the foreseeable future. 

With so many moving parts requiring so much attention, it is difficult to see the wood for the trees at the moment. Pockets of potential are in evidence, but have yet to be adequately delivered. 

The share price has tended to reflect this uncertainty over the last year, having slumped 31%, as compared to a 7.7% dip for the wider FTSE All-Share index. With the company currently requiring a leap of faith for investors, the market consensus of the shares as a sell is unfortunately likely to remain in place until further progress can be demonstrated.