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Last Monday (15 September), the AO World (LSE:AO.) share price soared 14% after the online electrical retailer issued a trading update ahead of its annual general meeting.
For the year ending 31 March 2026, the group said it expected its adjusted profit before tax (PBT) to be £45m-£50m. Previously, it was forecasting £40m-£50m. This narrowing of guidance was enough to add nearly £70m to its market cap.
Sparks are flying
AO World puts its success down to offering a wide range of products for sale as well as its Five Star membership scheme. For £39.99 a year, customers are entitled to free delivery, other perks and special offers.
Due to its strong cash generation and “confidence in its future performance”, the group announced its first-ever share buyback programme worth £10m. It’s never paid a dividend.
However, retailing is highly competitive and even though it doesn’t have any physical stores to worry about, it still faces the same inflationary pressures as its peers. And if the UK economy fails to grow, it’s likely to experience a drop in demand for some of the less essential items that it sells.
Analysts have a 12-month price target that’s approximately 30% higher than its current (22 September) share price. And it’s attracted the attention of Frasers Group, which is now its largest shareholder. But its share price has stagnated over the past 18 months or so. And with a historic earnings multiple of nearly 26, its stock isn’t cheap.
As much as I like the group, I think there are better investment opportunities to research elsewhere.
In the doghouse
In contrast to AO World, Pets At Home Group (LSE:PETS) had a terrible week. On Thursday (18 September), the pet care business saw its share price tank 15.5% after it announced a profit downgrade and the immediate departure of its chief executive.
The group, which has over 440 stores — many of which have onsite vets and provide grooming services — said its underlying PBT for its current financial year ending in March 2026, would be £90m-£100m (down from £110m-£120m).
Year-to-date, the group has experienced a 5% drop in store sales. But it reported “strong growth” in its Easy Repeat subscription service for essential pet products. Those who sign up will receive automatic deliveries with guaranteed savings.
The group’s been steadily increasing its dividend since the pandemic. After the share price tumble, the stock’s now yielding 6.7%. However, a reduction in its payout could be on the cards given the anticipated fall in earnings.
These could come under further pressure if rumours about planned changes to commercial rates are enacted. The government is said to be exploring ways to shift the burden away from smaller stores towards larger ones.
But people love their pets. The group claims to have a 24% share of a market worth £7.2bn. And there’s plenty of evidence to show that it’s better able to withstand an economic downturn than many other sectors.
The group also retains a strong balance sheet. At 27 March, it reported a net cash position. I also like the fact that it has a price-to-earnings ratio of below 9. For these reasons, I think Pets at Home Group is a stock to consider.
