Picture supply: Getty Photos
As a worth and revenue investor, I purchase shares that appear undervalued and/or supply beneficiant dividend yields. Nevertheless, I like being part-owner of actually nice companies, so my household portfolio additionally owns varied US tech and mega-cap shares. However after I take a look at the Ocado Group (LSE: OCDO) share value, I really feel like I dodged a bullet.
What a comeback
This grocery expertise and logistics firm has had a chequered historical past since becoming a member of the London inventory market. Floated at 180p a share in July 2010, this inventory quickly began sliding southwards. At its all-time low, the Ocado share value touched 52.1p in December 2011.
Nevertheless, going again 5 years or so to the Covid-19 pandemic of 2020/21, Ocado shares had been using wildly excessive. At their file, they peaked at 2,914p on 30 September 2020. Thus, traders who purchased on the 2011 low and offered on the 2020 excessive would have made nearly 56 occasions their cash in underneath 9 years. Wow.
Oh no, Ocado
All through 2020 to 2023, I repeatedly warned readers that I considered Ocado shares as far too richly valued. For my part, they had been priced for perfection and will solely go a technique — steeply downwards. It provides me no pleasure to be proper, as a result of long-suffering shareholders have misplaced many billions of kilos.
As I write, Ocado shares commerce at 186.4p, valuing the group at underneath £1.6bn. As soon as valued at over £20bn and a proud member of the elite FTSE 100 index, this inventory now resides within the mid-cap FTSE 250 index. Why? As a result of the share value has plunged 29.4% over six months and 42.7% over one yr. Over 5 years, the inventory has collapsed by 91.6% and is at the moment down 93.6% from its file excessive.
What’s extra, this FTSE 250 inventory has by no means paid a dividend, so the corporate has by no means returned any money to its shareholder homeowners.
Hero or zero?
Almost 40 years of investing has taught me that shares which have slumped by, say, 95% can hold falling till they attain zero. Then once more, historical past has additionally proven that some falling knives are literally fallen angels that get resurrected to glory. Alas, I’ve no sure-fire method of figuring out precisely which is which!
Ocado’s newest drawback was revealed earlier this month, when US grocery store accomplice Kroger determined to cut back their partnership. Kroger is to shut three automated distribution centres it operates with Ocado. This may minimize $50m from Ocado’s revenues on this monetary yr, offset by $250m in compensation. (Kroger additionally scrapped three warehouses in 2024.)
Ocado’s large drawback appears to be the large upfront funding required to fill warehouses with superior robots to select, pack, and transfer groceries. Therefore, centres must function at near-maximum capability. Regardless of this, Ocado has ongoing partnerships with Wm Morrison within the UK, Coles in Australia, and Sobeys in Canada.
Summing up, Ocado has nice expertise, however a problematic and so-far unprofitable enterprise mannequin. If it had been to get into critical hassle, I think its core belongings could be purchased by a robust US or world rival within the tech or grocery markets. And that’s why I consider there’s some hidden worth on this inventory. Nevertheless, I choose to hunt my returns elsewhere…
Picture supply: Getty Photos
As a worth and revenue investor, I purchase shares that appear undervalued and/or supply beneficiant dividend yields. Nevertheless, I like being part-owner of actually nice companies, so my household portfolio additionally owns varied US tech and mega-cap shares. However after I take a look at the Ocado Group (LSE: OCDO) share value, I really feel like I dodged a bullet.
What a comeback
This grocery expertise and logistics firm has had a chequered historical past since becoming a member of the London inventory market. Floated at 180p a share in July 2010, this inventory quickly began sliding southwards. At its all-time low, the Ocado share value touched 52.1p in December 2011.
Nevertheless, going again 5 years or so to the Covid-19 pandemic of 2020/21, Ocado shares had been using wildly excessive. At their file, they peaked at 2,914p on 30 September 2020. Thus, traders who purchased on the 2011 low and offered on the 2020 excessive would have made nearly 56 occasions their cash in underneath 9 years. Wow.
Oh no, Ocado
All through 2020 to 2023, I repeatedly warned readers that I considered Ocado shares as far too richly valued. For my part, they had been priced for perfection and will solely go a technique — steeply downwards. It provides me no pleasure to be proper, as a result of long-suffering shareholders have misplaced many billions of kilos.
As I write, Ocado shares commerce at 186.4p, valuing the group at underneath £1.6bn. As soon as valued at over £20bn and a proud member of the elite FTSE 100 index, this inventory now resides within the mid-cap FTSE 250 index. Why? As a result of the share value has plunged 29.4% over six months and 42.7% over one yr. Over 5 years, the inventory has collapsed by 91.6% and is at the moment down 93.6% from its file excessive.
What’s extra, this FTSE 250 inventory has by no means paid a dividend, so the corporate has by no means returned any money to its shareholder homeowners.
Hero or zero?
Almost 40 years of investing has taught me that shares which have slumped by, say, 95% can hold falling till they attain zero. Then once more, historical past has additionally proven that some falling knives are literally fallen angels that get resurrected to glory. Alas, I’ve no sure-fire method of figuring out precisely which is which!
Ocado’s newest drawback was revealed earlier this month, when US grocery store accomplice Kroger determined to cut back their partnership. Kroger is to shut three automated distribution centres it operates with Ocado. This may minimize $50m from Ocado’s revenues on this monetary yr, offset by $250m in compensation. (Kroger additionally scrapped three warehouses in 2024.)
Ocado’s large drawback appears to be the large upfront funding required to fill warehouses with superior robots to select, pack, and transfer groceries. Therefore, centres must function at near-maximum capability. Regardless of this, Ocado has ongoing partnerships with Wm Morrison within the UK, Coles in Australia, and Sobeys in Canada.
Summing up, Ocado has nice expertise, however a problematic and so-far unprofitable enterprise mannequin. If it had been to get into critical hassle, I think its core belongings could be purchased by a robust US or world rival within the tech or grocery markets. And that’s why I consider there’s some hidden worth on this inventory. Nevertheless, I choose to hunt my returns elsewhere…
