AO World left analysts and commentators baffled yesterday as shares in the online fridges and cookers retailer jumped 33 per cent in its first day of trading, leaving it valued at almost as much as its much bigger high street rival Dixons.
The white goods retailer, whose sales last year hit £276m, saw its stock rise from 285p to 378p, giving it a market value of £1.59bn. Dixons, with sales of £8.21bn, is capitalised at £1.88bn.
One analyst suggested the valuation echoed the dotcom bubble, which saw overvalued technology companies spectacularly collapse after rapid rises in the early 2000s, while others questioned the company's business model.
Investors appeared to have no such qualms, as the flotation, which saw AO's founder, John Roberts, sell an £86m stake, was more than two-times subscribed. The rising share price left Mr Roberts, who started 14 years ago from a pub in Bolton, with a paper fortune of £480m from his remaining 28.6 per cent stake, and the finance director, Steve Caunce, with a 13.6 per cent stake worth around £240m.
"I don't get it," said Freddie George, a retail analyst at Cantor Fitzgerald. "The last time I saw something like this was in the internet boom in the 2000s. This is very much like that.
"The stock market does have these sort of phases, with the technology companies going to unbelievable highs. I image US institutions are into this in a big way but with £370m of [full-year] sales forecast … a £1.2bn valuation doesn't make sense."
Kate Calvert, a retail analyst at Investec, was also unconvinced. "To me it is difficult to understand the valuation," she said, adding: "By most conventional measures it is a very full valuation."
Mr Roberts said he was "delighted that our initial public offering has been so well received by investors. They have understood our business model and our potential."
AO.com has ambitions to grow overseas and wants to be the biggest online electricals goods retailer in Europe, with a particular focus on Germany.
The company has appointed Brian McBride, chairman of Asos and a former Amazon UK boss, to its board as a non-executive director to tap into his knowledge which has seen the online fashion retailer grow to be worth more than £4bn.
But Ms Calvert warned: "To believe the valuation, you would have to see that they can be successful in Germany and elsewhere and they haven't started."
Dixons has already attempted to hit back against suggestions that it is losing out to AO.com, telling analysts and investors last week that it is 3 per cent cheaper than online competitors and has a cheaper supply cost on deliveries.