Is this unloved FTSE 250 ‘bargain’ share about to double in price?

The Currys share price has leapt more than 10% following the release of interim results. Is this FTSE 250 stock finally back in business?

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It’s been a tough year for many FTSE 250 shares as fears over the domestic economy have increased. Electrical retailer Currys (LSE:CURY) has been one of the index’s notable casualties, its share price receding 9% since 1 January.

But the company shot higher on Thursday following a better-than-predicted trading release for the first half. And some believe that the under-pressure firm could be about to mount even more impressive share price gains.

Analyst Adam Tomlinson has said that “with the share price circa 30% below early Covid levels, the current valuation remains far too punitive and gives no credit for any earnings upside from here”.

Tomlinson even suggested that “as a recovery takes hold we see the potential for the shares to at least double, in short order from here”.

At current levels of 49.1p, Currys’ share price trades on a forward price-to-earnings (P/E) ratio of 6.7 times. Is now the time to buy the beaten-down business for my portfolio?

A brief recap

Retailers have been battered recently by the cost-of-living crisis that has sapped consumer appetite. Trading has been especially tough for sellers of big-ticket items like electricals.

This challenging backdrop was highlighted in Currys’ half-year update today. It has said that sales dropped 7% between May and October, to £4.2bn, or 4% on a like-for-like basis.

Underlying revenues in the UK and Ireland dropped 3% year on year. And in the Nordics and Greece, comparable sales dropped 6% and 3% respectively.

Cause for cheer

So what caused Currys’ share price to spike, you ask? Firstly, adjusted earnings before interest and tax (EBIT) rose to £31m, up 7% year on year. It had been expected to drop from the £29m recorded in the same 2022 period.

Despite continued sales pressures, earnings have been boosted by a strong improvement at its Nordic operations. Adjusted EBIT there rocketed to £12m from £3m, as cost-cutting and a favourable product mix boosted gross margins by a whopping 190 basis points.

Signs of improved liquidity has also improved the market mood around Currys shares. Free cash outflows improved by £76m during the first half, to £10m. This was thanks to tighter control on working capital, lower capex costs, and a softer tax bill.

Risks remain

A Currys sales advisor on the shop floor.
Source: Currys

Today’s update has reinforced optimists’ hopes that Currys may be turning the corner. It also reflects a sunnier outlook for the firm’s balance sheet; it had earlier announced the £175m sale of its Greek and Cypriot operations last month.

But it remains too early to claim that victory is afoot. Sales continue to slide and, as tough economic conditions persist across Europe, the top line may continue to crumble. Intense competition will also hamper its ability to march back into revenues growth.

The above disposal will help Currys turn cash positive. But those aforementioned problems mean worries over the balance sheet will persist, casting doubts on when dividends will return. Net debt rose to £129m as of October from £105m a year earlier.

I’m not convinced just yet that Currys’ share price will double. In fact I think it could continue to crumble in 2024 as consumers tighten their belts.

Given the risks it still faces I’d rather buy other cheap UK shares today.

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.

Royston Wild 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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