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Dixons Carphone is bombed out, but is it bouncing back?

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'Tis the season to buy overpriced printer ink

‘Tis the season to be jolly, so last week I spared you an update on the ever-depressing “Bombed Out but Bouncing Back” portfolio.

For the record, however, the stock filter failed to come up with any new stocks to invest in and the one stock that was in the portfolio – Blancco Technology Group PLC (LON:BLTG) – got the old heave-ho.

The Blancco shares were sold at 75p a pop, 4p a share less than we paid for them, meaning we took a £330 loss son them.

Since August, when we rebooted the virtual portfolio experiment, we’ve done 84 transactions and only nine have shown a profit.

The sale left the portfolio as all cash and tempting though it is to punt the whole lot on bitcoin, that’s beyond the remit of the portfolio. Besides which, with only £5,606 in cash, the Bitcoin we could afford would be a tiny bit of a Bitcoin.

This week, the stock filter has come up with one investment idea, and it is an interesting one: Dixons Carphone Plc (LON:DC).

It’s not often the stock screening selection process comes up with a company on the very day it releases a trading update, but it has done today.

READ Dixons Carphone set to overhaul mobile business as first-half profits tumble

Annoyingly, I actually ran the stock screen yesterday and had I had the time to write the Stockpot article, we would have bought Dixons before this morning’s 8.3% share price rise.

I feel obliged to own up to two things at this stage: the first is that I had not realised Dixons had lost half its value over the last year; and the second is that I once tipped Dixons to be the following year’s worst-performing blue-chip stock in one of those end-of-year journalistic stand-by articles and it actually turned out to be one of the best, helped by Comet’s withdrawal from the UK.

So, take my analysis of Dixons with a pinch of salt, but my general view was that price comparison web sites and Amazon would do for Dixons.

Why would anyone shop at Dixons' retail stores?

I can understand people shopping there if they absolutely have to have some overpriced product now but under normal circumstances, I assumed shoppers would visit a Dixons store to see the product in person, whip out their smartphone to check the price on the internet, and then go home and order the product from the cheapest provider.

From which, you can deduce that this would not be a stock I’d be buying for my personal account (having learnt my lesson from owning HMV shares way back when) but “computer says ‘yes’,” so in it goes.

The brand has proved to be one of the great survivors of the High Street, and I am reasonably confident it will not go out of business before its time in the “Bombed Out” portfolio is up, despite the strange phenomenon that many established retailers appear to go belly-up on or around their busiest and most profitable time of the year.

The market is hankering for store closures – here’s hoping Dixons has taken out expensive extended warranties on its retail outlets – and it may get its wish.

With a low price/earnings ratio and a high dividend yield – albeit one that screams “dividend cut looks inevitable” – the stock may actually live up to our portfolio’s description of being “bombed out but bouncing back”.

(Note: I am not seriously suggesting Dixons could go bust; just engaging in a bit of black humour, given the track record of this portfolio).

Dixons has been a resilient High Street/retail park performer

“Dixons Carphone has enjoyed another record Black Friday and increased its market share in the key electricals and white goods markets. While there are still plenty of challenges ahead, this more resilient showing has given the group the confidence to say it’ll be holding the dividend steady this year, boosting the shares after a painful period in the doldrums,” observed George Salmon, an equity analyst at Hargreaves Lansdown.

“However, the main challenge facing the group is in mobile. Increasingly marginal improvements from one generation to the next, plus the squeeze on the UK consumer, mean customers are using phones for longer and replacing less often. Simply put, the latest models aren’t prompting the same scramble to the tills they used to.

“Dixons Carphone’s efforts on pricing haven’t managed to reverse this trend, but have seen margins drop. With mobile profitability falling, we wouldn’t be surprised to see the group make some major changes in the not-so-distant future, unless of course the iPhone X starts to fly off the shelves,” he added.

Here’s where we currently stand

 

Company

No. of shares

Total cost

Average price paid

Current bid price

Current value

Profit/ loss £

Profit/ loss %

Dixons Carphone

3,125

£5,602

179.28p

179.2p

£5,600

-£2.50

-0.0%

 

  • Cash: £4
  • Total value of original £10k portfolio: £5,605
  • Profit/loss on closed trades and dividends: -£4,394
  • Unrealised profit/loss on current holdings: -£2
  • Total profit/loss: -£4,396

 

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