I’m bearish on this growth stock for 2017 despite 12% sales growth

This stock could endure a difficult year.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in AO World (LSE: AO) have fallen by 8% today despite the company reporting positive results for the first nine months of the year. The online electrical retailer recorded a rise in sales of 12.3% in the third quarter of the year, but an uncertain future could lead to its performance suffering somewhat in the final quarter of the year. Here’s why I think it could be a stock to avoid in the short run.

Improving performance

As mentioned, AO’s sales performance in the third quarter was upbeat. In the UK, its business continues to grow and it delivered a rise in overall revenue of 8.9%. This was against tough comparators from the prior year, which makes the results even more impressive. In Europe, sales increased by 28.4% on a constant currency basis. This reflects a period of focus on building the company’s logistics capabilities and capacity, in order to provide a solid base for the business to grow.

In terms of its long-term plan, the company has made progress on delivering sales growth across all of its regions. Its launch of computing sales in the UK has been successful thus far, and the same can be said of its audio-visual offering in Germany. Further expansion is in the pipeline and the business is expected to move from loss to profit in the 2018 financial year. This has the potential to boost investor sentiment over the medium term.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

A difficult outlook

In the near term, though, AO has an uncertain future. Today’s update contains a degree of caution regarding the final quarter of the year, given the UK’s uncertain economic outlook. Inflation is expected to rise to around 3% this year, which could put it ahead of wage growth. This would leave consumers with less disposable income through which to afford purchases, with discretionary and larger items likely to be delayed until the situation improves.

AO could therefore endure a difficult few months, with the overall impact of Brexit likely to be negative for the business. Alongside this, the company faces potentially negative currency impacts on supplier pricing which could also hurt its performance.

A better buy?

Sector peer Sainsbury’s (LSE: SBRY) faces a similar challenge. Its purchase of Argos means that it is more focused on discretionary items than in the past, which could hurt its near term performance. Although its recent results showed that the company is making good overall progress, higher inflation is likely to have a detrimental impact on its business. Since its bottom line is already forecast to decline by 17% in the current year, it also seems to be a stock to avoid at the present time.

Of course, both companies offer bright long term futures thanks to their sound strategies and the likelihood of a sustained economic recovery in future years. However, it may be possible to buy them both at more attractive prices than those at which they trade today.

This AI stock is attracting investors like Michael Bloomberg and Peter Thiel…

Why are these legendary investors, already wealthy beyond imagination, drawn to this opportunity? The allure lies in more than just potential returns; it's a vote of confidence in a company poised for long-term success.

Imagine a revolutionary AI company that's not just participating in the digital media landscape but reshaping it entirely.

Trusted by giants like Amazon, Disney, and Netflix, the company reported nearly £637 million in revenue last year, marking a robust 7.8% growth over three years. Its impressive market reach and spirit of innovation are just the beginning of its story.

Best of all, we’re thrilled to offer you an exclusive glimpse into this game-changing AI investment, absolutely free.

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Sainsbury (J). The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Warren Buffett’s warning to markets played out perfectly: the time to be greedy may be approaching

Throughout 2024, Warren Buffett sold off holdings in companies like Apple and started amassing a huge pile of cash. Now…

Read more »

Electric cars charging at a charging station
Investing Articles

This FTSE 100 fund’s been selling Tesla stock and buying an EV rival instead!

Why has Scottish Mortgage Investment Trust been dumping Tesla stock while investing in the EV firm's China-based rival? Ben McPoland…

Read more »

Investing Articles

Could the S&P 500 be heading for an almighty crash?

Christopher Ruane shares his take on why he thinks the S&P 500 could be heading for a big fall at…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Down 64%, this FTSE 250 stock offers a 13% dividend yield for investors

This struggling investment banker has suffered significant losses in the past five years, but it has the second-highest yield on…

Read more »

Investing Articles

1 stock market ETF I’ve been buying during the sell-off

The stock market's been all over the place in April, creating a fertile breeding ground for long-term buying opportunities.

Read more »

Investing Articles

As the Sainsbury share price bucks the price-war trend on FY results, I examine the dividend prospects

The J Sainsbury share price has been regaining ground, despite growing fears of intense competition in the supermarket sector.

Read more »

The words "what's your plan for retirement" written on chalkboard on pavement somewhere in London
Investing Articles

Should I invest in a Stocks and Shares ISA or a SIPP to retire early?

Early retirement is the ultimate goal for many investors, but choosing between a Stocks and Shares ISA and a pension…

Read more »

Investing Articles

Is now a great time to consider buying Greggs shares?

Greggs shares have been hammered in 2025. But have they now fallen too far? Paul Summers takes another look at…

Read more »