J Sainsbury plc, Sports Direct International Plc & AO World PLC: Which Retailer Will Win This Christmas?

Which stock has the best prospects? J Sainsbury plc (LON: SBRY), Sports Direct International Plc (LON: SPD) and AO World PLC (LON: AO)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Forget Black Friday. For British retailers Christmas is the most important period of the year. In fact, for many companies it is make or break in terms of whether the entire financial year will be successful or not.

As ever, predicting who will be the winner is extremely challenging, since the Great British public are inevitably difficult to second-guess when it comes to how much they will spend and where. What is clear, though, is that this Christmas could be a big one for all retailers since it is the first year in which wage growth is outpacing inflation since the start of the credit crunch. As such, shoppers may have more to spend than in previous years.

This would undoubtedly be good news for J Sainsbury (LSE: SBRY) since the supermarket has endured a hugely challenging period in recent years. It has lost a significant proportion of customers to no-frills, discount operators such as Aldi and Lidl but, this year, it could perform relatively well under a new pricing strategy. In fact, Sainsbury’s is not seeking to beat its rivals on price, but instead is focused on value; especially regarding its own brand products.

Clearly, Sainsbury’s has a strong reputation for the quality of its own-brand goods and, when combined with higher disposable incomes in real terms, this could lead to increased sales versus its cheaper peers. Furthermore, Sainsbury’s has attempted to expand margins under its new pricing strategy, which is positive for the company’s bottom line. And, with Sainsbury’s trading on a price to earnings (P/E) ratio of 11.5, even if Christmas does disappoint its long term outlook as an investment remains appealing.

Of course, AO World (LSE: AO) is having an even tougher period than Sainsbury’s, with the online seller of electrical goods today reporting a loss for the first half of the year, with the shares falling over 15% in morning trade as a result. A key reason for this is investment in Germany as well as other start-up costs, with a pretax loss of £8m being recorded versus a pretax profit of £0.8m in the first half of 2014.

Looking ahead, AO World has the potential to expand across Europe, with the Netherlands today being announced as a new territory in which AO will trade in future. This expansion is expected to lead to strong profit growth over the medium to long term but, while the company’s top line may be given a boost by an improved Christmas trading period, its shares trade on a P/E ratio of 185, which indicates that they are fully valued.

Meanwhile, Sports Direct (LSE: SPD) also has international expansion potential, with continental Europe becoming an increasingly important space for the company as well as Ireland, where Sports Direct recently agreed to purchase 100% of the Heatons chain.

While many of its retail peers have struggled in recent years, Sports Direct has increased its bottom line at a rapid rate. This is showing little sign of slowing down, with the company poised to increase its earnings by 11% this year and by a further 15% next year. And, with it trading on a price to earnings growth (PEG) ratio of just 0.9, it appears to offer good value and capital gain potential, too. As such, it seems to be a sound purchase at the present time ahead of what is set to be another relatively upbeat Christmas trading period.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Sainsbury (J). The Motley Fool UK has recommended Sports Direct International. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »