Over the past three months, the FTSE 100 index has gained over 260 points (3.9%). However, not all FTSE 100 shares have risen over this period. Indeed, while 75 FTSE 100 stocks have climbed since late January, 26 have declined. And the worst performer over these three months is the Ocado (LSE: OCDO) share price. Here’s why.
The FTSE 100’s worst performer
Of the FTSE 100’s 101 stocks, 29 have risen by 10% or more in three months. These risers include many so-called value shares, whose prices have benefited from rising optimism for a post-lockdown boom. At the other end of the scale lie five shares whose values have declined by 10% or more over this period. Bottom of the list is the Ocado share price, which has crashed by more than a sixth (17.1%).
Before this fall, the Ocado share price was riding high. On 30 September last year, Ocado shares hit a record high of 2,914p. This was almost double the 52-week low of 1,561.5p on 23 April 2020, exactly a year ago. In other words, Ocado stock had a fantastic five-month winning streak. But all winning streaks come to an end.
The Ocado share price slips in 2021
The Ocado share price closed 2020 at 2,287p. It then enjoyed a bumper start to 2021, hitting 2,883p by 27 January. That’s a rise of 596p — more than a quarter (26.1%) — in four weeks. Following such a sudden and steep surge, Ocado shares were bound to take a breather. And so they have. As I write, they trade at 2,220p, down 663p — almost a quarter (23%) — from their late-January peak. After this price reversal, Ocado stock is actually down 67p (2.9%) in 2021. So what burst Ocado’s bubble?
Could the Ocado share price stage a comeback?
The main problem for the Ocado share price is that it was rated in line with highly valued US tech stocks. Floated in mid-2010, Ocado has been a public company for almost 11 years. In that time, it has generated huge cumulative losses, including a pre-tax loss of £214.5m in 2019. And as bond yields rose sharply in 2021, loss-making growth companies appear less attractive to investors. At its peak market value seven months ago, Ocado was worth £21.9bn, making it a FTSE 100 heavyweight. Today, the online supermarket is worth £16.6bn, a fall of £5.3bn.
Then again, Ocado is growing much faster than its conventional rivals. Revenues from its retail business grew by two-fifths (40%) to almost £600m in the 13 weeks ending February. If Ocado can continue its market-beating growth, then its shares might deserve to be more highly rated than their peers. And, despite its recent plunge, the Ocado share price has been a winner year after year. It’s up 36.5% over one year, 58.5% over two years, 312.7% over three years, and a mighty 576.3% over five years.
Would I buy this growth stock today?
As a veteran value investor, I like to buy into companies with strong balance sheets, revenues, cash flows, profits, and dividends. Right now, Ocado doesn’t fit my bill at this price. With the Ocado share price at 2,220p, this business is valued at 9.4 times its 2019 revenues. That’s far too rich for my bargain-hunter’s blood. Finally, I said Ocado was a bubble waiting to burst on 28 January. With the shares having fallen steeply since then, go-go growth investors might find these lower entry points enticing!
