Hi, I’m Christopher Luke Johnson and this is Stock of the Week.
A better-than-expected set of first half results, and talk of further expansion of its tech division, has seen Ocado OCDO stock jump over 50% over the past month.
Yet, dig a little deeper and it is evident that stock in the company, once enticingly dubbed “the Microsoft MSFT of retail,” is pretty much back where it was this time last year.
Shares in Ocado are now trading around the 351 pence mark. Lower than they were a year ago.
There’s no doubt that the first-half profit of £611.8 million is positive, especially when compared to the £153 million loss Ocado posted the same time the year before, but, for investors in the retail tech company, it is also a painful reminder of how stop/start Ocado’s journey has been – and continues to be.
Is Ocado Stock a Buy, Sell, or Hold?
Last year Ocado was one of the worst-performing UK stocks, as its shares fell around 45%.
That lead to the stock getting booted out of the FTSE 100, as it struggled to manage intense competition and the impact of the cost-of-living crisis on consumers.
Ocado has a lot of promise. But what’s the verdict? Should investors buy, keep, or dump Ocado Shares?
For a long time now investors have had a love-hate relationship with Ocado on the back of the success of its tech business.
Ocado Solutions sells its grocery-picking expertise to supermarkets.
During the pandemic, when there was a boom in online shopping, Ocado overtook Tesco becoming the UK’s most valuable retailer after its stock market value soared to over £21 billion.
Investors were also hopeful that Ocado’s deal with M&S, which enables Ocado to sell M&S food through its grocery delivery service, would give Ocado Retail a boost.
But the venture has failed to pay off, with M&S chairman Archie Norman, unhappy with its financial performance, threatening legal action against Ocado.
However, Morningstar analyst Verushka Shetty is bullish about the prospects for Ocado’s Smart Platform, but she says it’s still only at the start of its rollout.
She’s also cautious about the impact of exclusivity contracts with grocers, which prevent Ocado from partnering with other supermarkets in the same region.
Can Ocado Stock Continue Summer Gains?
Speaking of partnerships another key factor in Ocado’s future success lies in its collaboration with US grocer Kroger, which has eight automated warehouses with Ocado.
Analysts say significant expansion could improve Ocado’s profitability in the long-term.
But there are concerns that Ocado’s debt levels could hamper its path to profitability, especially in the context of high interest rates.
Its annual interest bill jumped to nearly £100 million this year after a £300 million refinancing at an 11% coupon rate.
The question for investors now is whether it can sustain this rebound and grow into the grocery tech giant it set out to be.
Or whether 10 years from now we’ll still be talking about its future prospects and the hope of a third return to profitability.
For more on Ocado go to Morningstar.co.uk. Thanks for watching see you next time.
