AO World hovers near record lows as gloomy outlook persists ahead of trading statement

[MongiIG]

Despite edging up from their record low, AO World shares reflect the tough outlook for this online retailer.

Source: Bloomberg

 Chris Beauchamp | Chief Market Analyst, London | Publication date: Wednesday 13 July 2022 

Fundraising and tough outlook drives rout in AO World shares

Retailer AO World has seen its share price collapse over the past year, falling by 90% from its post-pandemic highs.

The changed world of the past year has seen interest rates rise and inflation surge. Both of these have put severe pressure on consumer spending, as shoppers find themselves paying higher prices while having less money to spend as rates on loans and mortgages rise.

For retailers like AO World, which came to prominence in the era of ultra-low interest rates, there are additional problems. Borrowing now costs more, and leaves less room to plough funds into expansion and keeping prices low.

Thus, just as the outlook for earnings darkens, companies find that the cost of doing business is going up. This was the reason behind the capital raise recently, but as we head towards the firm’s trading statement there is still little reason for optimism.

AO World share price – technical analysis

Like other retailers such as ASOS, AO World has seen its share price decline relentlessly over the past 18 months. There is a clear downtrend in place, marked by declining 50-, 100- and 200-day simple moving averages (SMAs). In addition, rallies have been short-lived and weak, indicating little appetite by buyers to step in.

From 80 pence at the end of May, the shares halved to just 40p in early July. The slight bounce we have seen since then will likely result in a fresh selling opportunity. There is a long way to go before the shares could be said to have broken the downtrend.

Source: ProRealTime