Online electricals giant AO has had a turbulent year so far, posting eye-watering sales and profits figures but seeing millions wiped off its value as its share price continued to plunge since January.
The Bolton-headquartered company's shares started the year priced at 433p, the highest they have ever been worth since it floated in 2014.
The group's share price had been on an almost constant uptick since April 2020, helped by the UK shifting to online sales because of the Covid-19 pandemic.
READ MORE: AO - Everything you need to know about the online retail giant created after a £1 bet
However since the high point in January this year, AO's shares have been on the down turn and, following a further decline this week, are now being traded at about 96p.
The pandemic has had a dramatic impact on AO's finances, helping to drive its revenue by more than 60% to over £1.6bn during the 12 months to March 31, 2021, while its pre-tax profits surged by almost 2,000% to £20.2m.
The surge in activity also saw the business create more than 1,200 jobs during the financial year.
The group added in October that it still expected to increase its revenue during the second half of its current financial year after introducing measures to help minimise the effects of the HGV crisis.
However, the retailer issued a warning last month regarding "meaningful supply chain challenges" with "poor availability" of certain products in the run up to Christmas.
At the time the group said it now expects its full-year revenue to be "flat to minus 5%" year on year, with its adjusted EBITDA to be between £10m and £20m.
That is despite its revenue for the six months to the end of September increasing from £717m to £760m.
The group did however fall to a pre-tax loss of £10m, compared to a profit of £18m during the same period in 2020.
Following the reduction in share price and updated financial guidance, City analyst Panmure Gordon has revealed its views on the strategy of AO's management, its plans to expand across Europe and whether investors should buy or sell their shares.
Tony Shiret, equities analyst at Panmure Gordon, said: "Management plans remain to increase scale via product and geographic extension.
"There is clearly greater uncertainty about the pathway and the reversal of some of the Covid gains, rather than building on them, represents a loss of value in the long-term appraisal here, hence our target price reduction to 135p (-70%)."
He added: "In our discussion with management it appears that the repeated intention to open in three new countries over the next five to six years is dependent to some degree on the outturn in Germany.
"The plan is to make Germany decently profitable at scale and this is the group’s top priority.
"We doubt that the country extension will happen in any meaningful way unless AO can prove it can be successful outside the UK.
"One can make an argument as an investor for just stepping away here and returning when the medium-term picture is clearer. We expect strategy to be reset in calendar 2022.
"While the long-term aim to extend further into new products and geographies remains logical, we doubt whether the current sales-aggressive strategy is sustainable as evidenced by the attrition of the Covid benefit cash position over the last 12 months.
"We expect a more balanced, lower risk approach to emerge which is just fine.
"It is now clear that the path to the big sales base is likely to involve further volatility and so a less full-on strategy would appear more sensible.
"Reduced forecasts and a much-increased WACC give us a DCF-based 135p target price. It is easy to get carried away."
When contacted by BusinessLive, AO declined to comment.
