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This FTSE 250 share price has soared! Here’s what I’d do now

·3-min read
One of Dixons Carphone's Currys PC World stores

The FTSE 250 continues to struggle as spiking Covid-19 cases in several regions stoke fears over the economic recovery. In fact the UK’s second-tier share index has slipped to its cheapest for a week and a half below 22,450 points on Wednesday.

But the Dixons Carphone (LSE: DC) share price is having no trouble adding value in midweek business. Prices of the FTSE 250 retail share have climbed 6% to 129.2p per share following a positive reaction to its latest trading numbers.

Dixons Carphone said that revenues rose 2% in the financial year ending April 2021, to £10.3bn. It’s a result that drove adjusted pre-tax profit to £156m from £116m a year earlier.

A FTSE 250 success story

Like-for-like electrical sales at the firm jumped 14% over the 12-month period. This came despite Covid-19 lockdowns shuttering its stores for long periods in the UK, Ireland, Norway, Denmark, and Greece. It’s a result that reflects large spending by consumers on home entertainment and electricals during the pandemic.

Chief executive Alex Baldock commented, “We saw growth in every major product category, but computing was the standout performer as people adjusted to home working, learning and entertainment.”

But last year’s sales surge also reflects the significant progress Dixons Carphone has made in the e-commerce channel. Online sales at the retailer surged 103% year-on-year in fiscal 2021, to £4.7bn. Dixons Carphone introduced its ShopLive service — a live video service that allows customers to chat directly to sales staff — as well as a one-hour click and collect service to help court customers more effectively.

Dividends return

Dixons Carphone swung back into net cash position last year too. The retailer had £169m of net cash as of April versus debt of £204m a year earlier. This encouraged the business to resurrect its dividend policy as well and it pledged a full-year reward of 3p per share. Dixons Carphone suspended shareholder payouts in spring 2020 as the Covid-19 crisis spread.

Finally Dixons Carphone said that it has enjoyed “continued strong trading” so far in the new fiscal year. It said, “We continue to see evidence that our markets will be structurally larger post-pandemic, and that not all last year’s growth was pulled forward.”

Should I buy Dixons Carphone?

It’s clear that Dixons Carphone’s heavy investment in e-commerce in recent years paid off handsomely last year. It has allowed the company to compete more effectively with online-only rivals like AO World and Amazon. And it gives the company an opportunity to make fat profits as shoppers go online to shop in increasingly large numbers.

There are some big risks to Dixons Carphone’s earnings outlook, of course. Competition is intense and any downturn in the economic landscape could smack demand for its big-ticket items significantly. Then there’s the threat of a worsening global microchip shortage that could harm supply across many of its product lines. For these reasons, I’m content not to buy this share despite its excellent recent progress.

The post This FTSE 250 share price has soared! Here’s what I’d do now appeared first on The Motley Fool UK.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021

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