The AO World PLC (LON:AO) (AO.L) share price has risen by around 3% today after the online electrical retailer released a third quarter trading update. It remains on track to deliver on its guidance for the full year, with revenue increasing by 8.2% versus the same period of the previous year.
The company reported that customers have responded positively to its Black Friday offer, with it contributing to an increase in UK sales of 4.4% during the quarter.
In AO World’s European business, sales growth was 31.3% on a constant currency basis. This was an improvement on the growth rate recorded in the second quarter as a result of the impact of changes made to its driver operating model during the first half of the year.
The company completed its acquisition of Mobile Phones Direct during the quarter. This is in line with its strategy of broadening the categories offered for sale in its UK business.
In my view, the performance of the company has been relatively solid in what was a challenging quarter for the wider retail sector. Consumers seem to be adopting a cautious stance towards spending, with the potential disruption from Brexit possibly being a contributing factor.
In my view, there could be challenges ahead for AO World. Consumers may put off the purchase of big-ticket items such as TVs and fridges if they feel insecure about their job prospects. With Theresa May’s Brexit plan due to be voted down in Parliament next week, there could be a period of increased volatility ahead for companies that rely on the UK for a sizeable portion of their sales.
Since the stock has a relatively high valuation using next year’s forecast EPS of 1p, with its forward P/E currently being 128, I believe there may be better value opportunities available for me elsewhere in the retail sector.