On 22 July I decided Ocado (LSE: OCDO) shares had suffered enough, and added the online grocer and logistics group to my portfolio.
Four days later, I doubled down and bought some more. I knew Ocado was risky, but decided it had massive potential, if I could stomach the volatility.
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I bought my first stake at 401.6p. That’s a massive 86% discount to the peak Ocado share price of 2,808p, which it hit back in February 2021. My second stake cost me 432.3p. I quickly found myself down 20%.
A FTSE 250 stock with big potential (and risks)
Luckily, I had braced myself for a bumpy ride. As I wrote on 24 July, Ocado shares are at the mercy of investor sentiment. “If markets feel confident about the economy, they bounce. If investors feel downbeat, they plunge.”
And so it’s proved. The simplest broker update can send the shares into a spin. When the group publishes results, it’s time to buckle up.
I logged on to my trading account to find my Ocado holding had jumped 10.87% this morning after a positive set of third-quarter results. Although in a measure of its volatility, the stock is still down 54.4% over one year.
Ocado upgraded revenue guidance after Q3 retail revenues jumped 15.5% to £658m. Total items sold climbed 15.4% to 249.9m, while average orders per week rose 14.7% to 437,000.
The board is now targeting low-double-digit percentage sales growth for the year to 3 December, up from July’s guidance for mid-to-high single-digit growth.
Ocado now boasts more than a million active customers, up 10.3% over the quarter, while it’s getting more orders as it boosts delivery slots.
One of my favourite growth stocks
There are still mighty risks attached to Ocado, which has been losing money for years. Revenues climbed again to £2.825bn in 2023, but it still posted a £403.2m loss.
Ocado is on course to make a loss in 2024 too, having posted a first-half pre-tax loss of £154m. However, that was down from £289.5m the year before.
We may be over the worst of the cost-of-living crisis, but consumers are a long way from throwing the cash around. Ocado has been forced to cut average selling prices by 0.4% over the last year, at a time when UK grocery prices rose 2%, to show it can compete on price. If consumer sentiment falls, Ocado shares will fall further. That’s just how it is.
I have a big stake in its fortunes (by my standards), so won’t be buying more. There’s a pretty good chance the share price will trail downwards anyway, once the dust settles on today’s results.
Yet I still believe that with a long-term view, Ocado is one of the hottest UK growth stocks around. I just hope my stomach can survive the trip.
