The worst-performing stock so far today (27 February) is Ocado (LSE:OCDO). The Ocado share price is down 19% and hit its lowest level since 2017 earlier in the morning. Clearly, a move of this size means that something significant is going on. Here’s the story and why I won’t be buying it right now.
More headaches
The main catalyst for the move came from the release of full-year results for 2024. The business posted a loss before tax of £374.5m. Although this was slightly smaller than the 2023 loss of £393.6m, it was still a disappointing result for investors to have to digest. Arguably, it’s even more frustrating when you consider that revenue for the period rose by 14.1%. Yet this couldn’t filter down to a profit, mostly due to higher depreciation and amortisation costs.
Another point of concern aside from the finances came with the slowdown in the rollout of robotic sites for its grocery retail partners. On top of that, no new exciting partnership deals were announced. The deal with Marks and Spencer is currently in “constructive talks”, but I think most would agree that this has now become a headache that simply needs to be closed out so both sides can move on.
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Bright sparks to note
Despite the bad news from the results, there were positives. It spoke about how “Ocado Retail in the UK continues to lead the way as consistently the fastest-growing grocer in the market and reaching one million active shoppers for the first time.”
The Retail division grew by 13.9%, which is impressive when you consider that this is operating in a fiercely competitive grocery market. At a time when consumers in the UK are still feeling the pinch, the revenue growth in this area is a big positive.
Even though the management team will take some encouragement from this, the share price drop today is very telling. The stock is down 32% over the past year, with any losses today adding to this figure. And given that the company is still making hefty losses, it’s hard to use traditional valuation metrics to pinpoint if it’s at all undervalued.
I’m staying clear
Ocado has a lot of potential, particularly with its logistics centres and making use of robotics and automation. However, until I can see signs that finances at a group level are materially improving, I just can’t justify investing.
I accept that maybe I’m being overly pessimistic. For investors who have a higher risk tolerance than me or who feel the fulfilment centres can be rolled out at a faster pace in the future, it could be a smart purchase. But I feel there are better (and safer) opportunities in the market for me at the moment.
