Shares of British online electrical and home appliances retailer AO World PLC (LON: AO) are down over 20% this year despite the release of upbeat quarterly earnings results for the three months ended December 2020.
Investors are worried that the retailer’s rising operating costs will consume the extra revenues generated by the company. Brexit is also set to hurt the company’s sales, given the new trade restrictions between the UK and the EU.
AO World will also take a substantial hit from the cancellation of long-term contracts due to the coronavirus pandemic is also likely to weigh on the company’s stock price.
The online retailer’s stock price is currently trading off a major support level at 279p, which curtailed the downtrend in place since the start of the year.
AO World shares have since fallen from a high of 445p on 8th January to a low of 280p where it bounced from the support level to trade at its current price around 325p.
The current setup indicates that the selling pressure has abated as investors factor in the likely hit to its full-year earnings due to higher operating costs.
I would not be surprised if AO World shares spiked higher on its next earnings date given that investors are already expecting poor figures and any positive data could trigger a fresh bout of buying pressure as investors rush to accumulate a position in the retailer.
The current wave of coronavirus lockdown measures has conditions similar to those that drove AO World shares to quadruple in value last year as people updated their electricals and home appliances since they were spending a lot of time at home.
I’m bullish on the stock short-term, but any unexpected negative announcements could see the shares reverse and break below the 280p resistance level triggering further losses and invalidating the bullish thesis outlined above.
AO World share price.
AO World shares are down 20.97% this year, could a new rally begin following the recent bounce at support.
