Ocado Group (LSE: OCDO) shares have whipsawed up and down over the past six months. But long experience has taught me that volatility can lead to opportunity, as well as danger. So does the Ocado share price look like good value to me right now?
Ocado shares soared in 2020
First, a brief history of Ocado shares. During the pandemic crisis of 2020, the online supermarket’s stock skyrocketed in value. At its all-time intra-day high, the price peaked at 2,914p on 30 September 2020.
Alas, it’s all been pretty much steeply downhill for this growth stock ever since. Here are three gruesome year-end milestones for the share price:
| End-2020 | 2,287p |
| End-2021 | 1,678p |
| End-2022 | 616.8p |
Even worse, the stock collapsed to a 52-week low of 380.3p on 13 October 2022. But this FTSE 100 share has since rebounded, closing at 635.2p on Friday. Yet this still leaves Ocado shares down more than half (-52%) over 12 months. Ouch.
Ocado has never made any real profits
When I look at the six-month chart of the Ocado share price, it looks incredibly volatile to me, with steep plunges and equally strong surges. Frankly, this looks like an excellent stock for short-term traders and volatility addicts. But perhaps not for value investors like me?
Meanwhile, there’s a real business valued at almost £5.3bn behind these frenzied oscillations. On top of Ocado’s well-known UK joint venture with M&S, the group is striking deals to license its high-tech warehouse solutions to major retailers globally. So it’s actually part online grocer, part tech firm.
Despite having been founded in April 2000 — nearly 23 years ago — the group has made substantial losses in almost every year of its existence. As a result, the company has never paid out any cash dividends. And it’s this lack of earnings and dividends that make the group impossible to value based on conventional fundamentals, in my opinion.
What next for Ocado?
Ocado shares have dropped more than a fifth (-20.8%) since it revealed disappointing Christmas trading figures on 17 January. Opening more storage space has lead to over-capacity, while Ocado Retail’s margins are being harmed by rising costs.
Meanwhile, average spend per basket has declined slightly as consumer tighten their belts, with quarterly sales up a mere 0.3%. As a result, revenues fell 3.8% in 2022 versus 2021. And that’s after substantial price increases during the ongoing cost-of-living crisis.
Then again, demand for online shopping soared during the pandemic and is expected to keep growing in future. And Ocado offers powerful tech solutions to large retailers unwilling or unable to develop highly automated warehouses and logistics without outside help. So more grocers overseas may sign contracts with Ocado, which would be positive news for its share price.
For the record, I have added Ocado shares to my watchlist, but I won’t be buying them now. Instead, I’d much rather wait for the company’s 2022 results, due out on 28 February. If the business looks like it’s finally on the way to sustainable profits, then I may well be tempted to buy this UK growth stock…
