Earnings: are Currys shares a bargain buy after mixed Christmas trading?

Ben McPoland reviews the Christmas trading report and assesses whether Currys shares might now be a bargain hiding in plain sight.

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Currys (LSE: CURY) today reported a mixed trading update for the 10 weeks including the Christmas shopping period. The stock responded with an 8% rise during morning trading, though it still trades for pennies. Are Currys shares now a possible bargain buy for my portfolio?

Christmas trading

Currys is increasingly becoming a tale of two businesses between its UK and international units. The UK and Ireland operation improved during the 10 weeks to January 7 — its peak period — when compared with the rest of the financial year to date.

This still included a 5% like-for-like sales decline for the 10-week period. But it was offset by better-than-forecast profits delivered through gross margin increases and continued cost savings. Its omnichannel capabilities proved resilient, with stores actually outperforming online.

However, the electronic retailer’s international operations (Greece and the Nordic region) continued to deteriorate over the festive period. Sales declined 7% year on year and profits were lower than expected.

Chief executive Alex Baldock commented: “Internationally, it remains tough and we continue to face into intense, but temporary, market pressures. We’re not simply waiting for the external environment to improve, of course. We’ve already reduced stock levels and stepped up our measures to increase margins and reduce costs.”

Worryingly, international sales declined in all categories except small appliances. Overall, the Nordics saw a 10% decline in sales compared to the same Christmas period last year.

However, assuming no further macro deterioration, management is leaving its current annual guidance unchanged. That is for adjusted profit before tax of £100m to £125m for the full year.

Medium term (2024/25), the target is for a group-wide operating margin of 3%.

The stock

The business used to trade under the Currys PC World brand. Then the company gained Carphone Warehouse in 2014, before rebranding to become just Currys in 2021.

Despite all this rebranding activity, the shares have continued their downward trend.

Time frame Share price performance
1 year -37%
3 years -52%
5 years-65%

The market cap today stands at £730m. But this is a company that generated £10bn in annual sales last year, which gives it a price-to-sales (P/S) ratio of 0.08. To say that’s low would be an understatement. It means the firm is valued at less than one-tenth of annual revenue.

So, is this a bargain hiding in plain sight? Well, if management is able to improve that 3% operating margin over time, I think the stock has major turnaround potential. The shares have responded strongly today, at least.

Will I buy Currys stock?

The short answer to the question of whether I’ll buy is no, I won’t. Although the company undoubtedly has brand value, the combination of low growth, patchy profitability and a shallow economic moat doesn’t scream great long-term buy to me. The consumer electrical goods market is hyper-competitive. This results in razor-thin profit margins, and I don’t see that changing.

More broadly, I see no major catalyst that will push its stock higher over the long term. So I won’t be adding the shares to my portfolio.

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.

Ben McPoland 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.

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