What’s going on with the Ocado share price?

The Ocado Group plc (LON:OCDO) share price has tumbled again today. Paul Summers takes a closer look and asks whether this could be an opportunity.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Stack of British pound coins falling on list of share prices

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Ocado (LSE: OCDO) share price is down heavily today. That’s despite the company reporting what appears to be a fairly robust set of full-year numbers. What’s going on?

Revenue up

Let’s focus on the good stuff first.

At £2.5bn, revenue for the 12 months to 28 November was 7.2% higher than the previous year. As one might expect, the vast majority of this came from retail sales via its joint venture with Marks & Spencer. One thing that’s particularly worth highlighting here is that sales were also 41.5% higher compared to pre-pandemic levels. This, if anything, goes some way to endorsing CEO Tim Steiner’s belief that online grocery demand is “here to stay”.

Away from its retail arm, Ocado opened five of its high-tech Customer Fulfilment Centres (CFCs) over the period. Seen by many investors as the reason to own the stock, two of these were located in the US. This, in turn, helped revenue from its international solutions arm soar over 300% to £66.6m. A total of 13 sites are now up and running around the world.

What’s got investors so frustrated?

Unfortunately, the company hasn’t been immune to worker shortages. A lack of HGV drivers served as a growth headwind in the second half of the year. A fire at its Kent distribution centre last July also reduced capacity. 

Collectively, these factors — combined with the ongoing costs of developing its tech — may go some way to explaining why the Ocado is out of favour again today.

Ocado share price: opportunity or warning?

Taking into account today’s significant fall, the Ocado share price has now tumbled 23% in 2022 alone. The performance over the last 12 months is even more depressing for loyal holders. No less than 56% has been wiped off the company’s value.

As someone focused on growing wealth over the long term, should I see this as an opportunity to build a position?

Looking at the positives, it’s clear that Ocado’s tech is in demand with a total of nine CFCs due to open in 2022. Assuming the company really can help partners “go-live quicker, at lower cost and achieve higher margins and returns on capital“, I can only see this annual number rising in future years.

The company is also proving increasingly popular with shoppers. Customer numbers rose 22% over the last financial year and orders rose nearly 12% to 357,000. 

On the flip side, a £9bn valuation remains lofty considering this company made a loss of £177m in 2021 due to increased investment. And even if Ocado made all the right moves from here, there’s a possibility that shareholders could see the value of their holdings fall further in 2022 as the market grows increasingly averse to ‘jam tomorrow’ companies.

A safer bet?

The awful performance of the Ocado share price in the last year is further evidence that no investment is risk-free. It also highlights that sentiment towards even the biggest UK companies can quickly reverse.

Personally, I’m in no hurry to buy this beaten-down stock today. In fact, I’d be more inclined to buy a slice of market-leader Tesco.

While lacking Ocado’s technical know-how and growth prospects, its forecast £60bn revenue is 24 times that of its FTSE 100 peer. It has its own risks, but may also be regarded as a better option for coping with inflationary times due to its pricing clout and 3.7% dividend. 

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.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Ocado Group and Tesco. 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.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

Just released: our top 3 small-cap stocks to consider buying in October [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »