AO's steady climb

AO began in 2000 and came to the stockmarket in 2014 with the air of an insurgent: an online specialist trying to do for bulky household goods what others had done for books or fashion. The journey since then has been less smooth than the early story implied. The group pulled back from continental Europe, refocused on Britain and spent recent years trying to prove that scale in appliances could produce reliable profits, not just revenue. FY25 suggested that this repair job was working: revenue reached £1.21bn, adjusted profit before tax and free cash flow rose, with the group ending the year with net funds and an undrawn £120m revolving credit facility. Let's take a look at the company's latest trading update to see whether the momentum is still holding up.

The online seller of fridges, washing machines and other electrical goods says revenue for the year to March 31st 2026 should rise by about 11%, while adjusted profit before tax should land at the top end of earlier guidance, at roughly £50m. Free cash flow is expected to jump to about £65m, from £23m the year before. For a retailer in a tough consumer market, that suggests a business becoming more disciplined as well as bigger.

This latest update says the improvement has continued. Sales are still rising, but profit is rising faster, with adjusted profit before tax expected to grow by about 15% year on year. That matters because retailers can always buy revenue with discounts. The more interesting claim is that AO is gaining market share across its key categories while still widening profit. The company also says it has hedged about 80% of forecast fuel use and all electricity use for FY27, which should soften the blow from recent energy volatility.

What the numbers really say

The core message is not that AO is booming, but that it is becoming sturdier. A business that once excited investors with growth now seems keener to impress them with cash conversion. Expected liquidity of about £200m at year-end is a sign of that shift, as is the sharp improvement in free cash flow.

There are still reasons for caution. The company's own language points to "material cost headwinds". Appliances remain a competitive market, and demand can be delayed when households feel squeezed. Even after the recent progress, the group's historic net profit margin remains thin, and that leaves less room for error than the upbeat tone of management comments might suggest. 

Cheap, dear, or just fairly rated?

Valuation offers a mixed picture. The stock trades on about 14 times forward earnings. Enterprise value is about £493m, equal to roughly 6.3 times EBITDA. Those are not demanding multiples for a business that is still growing revenue at double digits and producing stronger cash flow.

The update, then, reads as encouraging rather than transformative. AO appears to be doing the hard retail work well: taking share, controlling costs, protecting energy exposure and turning profit into cash. The full-year results on June 17th should offer a clearer answer. The stock rose 5.2% this morning after the release of the update.