FTSE 100 stock Ocado (LSE: OCDO) has been flying recently. I own shares here already, and I was thrilled to see them jump 79% in only a month.
I’m quite bullish on the firm’s prospects, so I think there could be a lot more growth on the way. The question I’m asking myself is this: is it too late to buy more?
The reason I’m considering topping up, and the reason I added Ocado to my portfolio in the first place, is its exceptional technology. While for many this is just an online grocery store partnered with Marks and Spencer, there’s a lot more behind the curtain.
In short, the company uses robot-filled warehouses to bag up our shopping. The Youtube videos of the little machines zipping around, filling bags of groceries with no human input are truly impressive. It’s got that exciting potential of making huge efficiency savings and keeping the wages bill down.
I like that this technology comes from a UK company too. A lot of people overlook the UK’s great start-up culture, but we’re actually only one of three countries – with the US and China – to have a $1trn tech sector.
And this isn’t a ‘jam tomorrow’ thing. This tech is in demand right now and orders are coming in. Ocado has already signed deals to build these warehouses with leading grocers in the US, Canada and South Korea. If we start to see this tech being adopted worldwide, I suspect there might be more explosive growth on the horizon.
A few issues
Having said all that, what’s stopping me from adding to my position? Well, there are a few problems. To start with, I would be paying 79% more for the stock than a month ago, which makes me wonder if it’s too late to get a really good price here.
That big jump came on the back of takeover rumours. A June 22 piece in The Times claimed that Amazon was interested in buying the company, presumably to complement its cashier-less Just Walk Out supermarkets.
The rumoured buyout would be for £8 a share, which is another 40%-50% or so on today’s £5.88 share price. That would be a nice little earner I suppose, but I’m not that keen on buying more shares just for a short-term win.
The big picture
Looking at the big picture (and assuming the Amazon deal doesn’t materialise), it’s tricky to work out whether the stock is undervalued or not. Ocado has still not turned a profit (another big issue), and the latest guidance shows it won’t in the next year or two either. With no earnings, any assessment of the share price would feel like a stab in the dark.
I’m even more concerned with the rising short interest in the stock. It now has 5.33% of its shares shorted, one of the highest figures on the FTSE 100. I’m always wary when big, sophisticated investors make a bet that a stock will fall as they’re often correct.
I think these risks make Ocado a pretty speculative stock to buy. I’m content to continue holding, but I’ll be looking for less risky FTSE 100 stocks for my next purchase.
