AIM-listed Naked Wines (LSE: WINE) was having a pretty bad 2022. Its share price has almost halved. And the drop over the past year is a bit more severe, making it a dirt-cheap UK stock for me. But today, its fortunes have turned dramatically for the better after it released its trading update. As I write, its share price is up 15% from the last close.
Naked Wines’ positive trading update
Clearly, investors are encouraged by numbers like a 72% increase in its sales over a two-year period, for the year ending 28 March 2022. Its sales over the last year show a much smaller increase of 3%, but even that is a positive in my view. Lockdown sales were expected to be unusually high as we did not have the option of going out for a drink. If anything, I would have expected a drop in sales from last year, given that much of its financial year covers the post-lockdown period.
Its sales retention, which is the percentage of revenues derived from existing customers, is at an impressive 80% too. The fact that the company has been able to retain customers even after the pandemic, is an achievement in itself. But it gets even better when it is higher than expectation of a mid-70s guidance. It has also reported pre-interest and tax profits.
What has changed for the AIM stock?
At the same time, I cannot help but notice that the broad trend is not particularly different from the first-half update released in November last year. Its two-year sales were still strong, as was customer retention. And it had swung into pre-tax interest and profits as well. Yet, at the time, its share price had fallen more than 9% in a day.
So what has changed? I can spot two differences. First, it sounded less optimistic in its outlook then. For instance, it expected the impact of higher costs and supply chain challenges on profit margins. Second, as per a Bloomberg report I read earlier today, the latest numbers have exceeded analyst expectations, who believed that Naked Wines would report losses. This is the opposite of what happened the last time, when its sales growth was lower than anticipated.
Would I but the dirt-cheap UK stock?
This says to me that Naked Wines’ future looks positive. Its results are better than expected and its outlook is positive too. The stock price for the customer-funded online retailer, which sources from independent wine makers, however, is now close to levels it last saw right after the lockdowns started in March 2020. This is despite significantly higher sales since then, which makes it surprisingly cheap.
Consumer expenditure might be impacted if inflation continues to rise, of course. And this could impact wine sales. But I think over time the AIM stock will still be a good one for me to hold. I will buy this dirt-cheap UK stock.