Stock of the Week: Ocado

James Gard: Welcome to Morningstar. Our latest stock of the week is Ocado, the online grocer.

It has just released full-year results and investors didn’t like the numbers at all. They showed losses increasing and higher spending on tech and logistics. Shares fell 10% on the day and are down nearly 20% this year so far. To be fair this fall has come after many years of exceptional returns. Now the shares are back to where they were at the start of the pandemic.

Where does that leave investors now?

Morningstar analyst Ioannis Pontikis now says the shares are cheap and the market has over-reacted to the latest results. He argues that the Ocado Smart Platform is by far the most efficient grocery fulfilment system in the market. He is also optimistic that Ocado’s investment in automated warehouses will eventually bear fruit, but that’s some way off.

Investors have recently lost patience with companies like Ocado that promise profits in the future rather than in the here and now. That seems to be true of other pandemic winners like Just Eat Takeaway and Deliveroo, whose shares have crumbled recently.

Ocado can also claim to be one of the UK’s rare tech stories too, and that has been part of its appeal in the last few years. But investors have recently turned their backs on tech, selling off stocks like Meta and Spotify.

Ocado has a fair value estimate of £18.70, significantly above the current price of around £12 per share.

For Morningstar, I’m James Gard.



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