This post is about the eleven reasons why I think Dixons Carphone trumps AO World as a good investment. Sure, both retailers are struggling as seen in the decline of their share price.  

For me, what is astonishing is how investors gave AO World the benefit of the doubt while neglecting Dixons Carphone consistent performance. Because it is the one paying out a dividend, the one making cash flow earnings, the one making improvements to their business model and the one seeking to save on costs.

AO World shouldn’t be valued at over £500m.

 

If I had to choose a stock to invest it would be Dixons Carphone.

Below are the eleven reasons why.

 

Reason 1: Superior Profits

When it came to faster sales growth, I tip my hat to AO World.

However,

since 2011, AO World has seen sales rose from £164m to £701m, but they haven’t made one pence in operating profit over this period.

In fact, it has achieved accumulative losses of over £20m.

Meanwhile, Dixons Carphone saw their share price drop 30% because it was forecasting an average profit decline of £100m to £400m (median estimates).

 

Reason 2: Pay high bankers’ fee for high valuation

Anyone looking at the table below would be eerily suspicious of paying to obtain a high valuation in their IPO. However, there is no evidence that suggests this is the case (apart from the numbers below). By comparing other similar IPOs such as Pets at Home and Boohoo.com we see some stark contrast.

Here is the illustration:

Companies

Gross proceeds

Bankers’ fees

AO World

£60m

£20m

Pets at Home

£280m

£40m

BOOHOO.com

£300m

£14m

 

As you can see, AO World is paying one-third fees to raise gross proceeds of £60m, that is high and not to mention very expensive.

 

Below is the interpretation from the above table:

Companies

Net proceeds

% of proceeds paid to bankers

Net proceeds/IPO valuation

AO World

£40m

33.3

£40m/£1,200m = 3.3%.

Pets at Home

£240m

14.3

£240m/£1,300m

=18.5%.

BOOHOO.com

£286m

4.6

£286m/£850m

=33.6%.

 

Look at the net proceeds to IPO…

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