Shore Capital advises selling AO World PLC (LSE:AO.) shares, despite the online retailer's upgraded profit guidance.
The broker's analysis highlights a 12% year-on-year revenue drop, signalling a worrying decline in market share. This decrease is partly attributed to AO World's SKU rationalisation, which, while nearing completion, has impacted sales.
The retailer's gross margin improved to 23.5%, up from 19.5%, credited to eliminating unprofitable sales and introducing delivery charges.
However, these measures, alongside reduced R&D spending and property rationalisation, might detract from customer value.
AO's profit before tax (PBT) is expected to hit £28-£33 million, but Shore remains cautious. It points out the company's shares are trading at a high price-to-earnings (P/E) ratio of 19 times for FY24, against a sector average of 13 times.
This premium, coupled with the need for a significant revenue boost in the second half and persistent web traffic softness, supports the 'sell' rating. On Tuesday the stock was changing hands at 83p.