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Why I’m backing this FTSE 250 stock to continue its recovery post-Covid

David Craik
·3-min read
Hand arranging wood block stacking as step stair on paper pink background
Hand arranging wood block stacking as step stair on paper pink background

Shares in the FTSE 250’s electricals retailer Dixons Carphone (LSE:DC) have charged over 15% higher to 140p over the last month at the time of writing, as locked-down consumers keep themselves entertained on their games consoles and TVs at home.

It’s been quite a recovery for the group whose shares closed at 136.65p on January 5th, 2020 before plunging to just 62.10p on April 19th just a few short months later, as the pandemic shuttered its UK high street and travel stores.

Despite further lockdowns across its 16 markets – including Denmark and Ireland – the group’s online business has kept sales rocketing. In its most recent market update it revealed a 11% growth in group electricals revenues in the 10 weeks to January 9th 2021, with UK online sales soaring 121%.

It also hailed an increase in online market share helped by innovations such as ShopLive, which allows shoppers to have a video call with staff and see product demonstrations.

Why I’m bullish

I believe that sales for the FTSE 250 firm will keep rising as the online shopping boom continues and its stores, fingers crossed, re-open in the UK on April 12th.

A public still denied the chance to sit inside a pub or cinema will continue to seek their entertainment indoors, especially with a ‘Summer of Sport’ ahead.

I see shoppers flocking to or going online to buy large Dixons Carphone TVs to watch the return of the Wimbledon tennis tournament and the delayed Euro 2020.

But the biggest driver of the share price in my view could be the UK Government clamping down on waste to meet environmental targets.

The UK generates around 1.5 million tonnes of electrical waste every year, and the Government hopes that a new Right for Repair law this Summer will help tackle the problem.

For the first time, electronic manufacturers will have to make spare parts available to help consumers fix broken-down technology, potentially increasing their life span by 10 years.

Consumers will not be expected to get underneath the machinery and fix it with their own screwdrivers and multiple swear words!

They, I believe, will turn to FTSE 250 constituent Dixons Carphone whose Knowhow Repair Lab is the biggest electricals repair centre in Europe. Through its National Recycling facility and partnerships with Reuse charities helping low-income households it has a clear ‘green’ lead over rivals such as Amazon.

The law could lead to fewer electrical goods being sold but I think growing repair demand will more than offset this.

Risks to consider

There are a few issues, however, that might stop me buying Dixons Carphone shares. The re-opening of society might see shoppers abandon their in-home entertainment systems and spend more time and money outdoors.

Another risk could be rival Amazon opening electricals-only stores. It has done it with food, so why not laptops?

I also fear that another annual statutory pre-tax loss on June 30, after two successive years in the red, could see Dixons Carphone’s price reverse.

However, online growth, store re-openings and its green leadership should help the FTSE 250 company to continue prospering.

The post Why I’m backing this FTSE 250 stock to continue its recovery post-Covid 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. David Craik has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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