E-grocer Ocado (LSE: OCDO) was the biggest FTSE 100 gainer yesterday. Its share price was up almost 5.5%. It has maintained its momentum in early trading today too, with a rise of another 2% so far. While this is a positive, the fact remains that the stock has done very poorly this year. Its share price is down some 35% from last year. This questions for me, as we head further into October are, can this share price rise continue? Or will it fall further?
Deeper partnership with Kroger
I think there are arguments on both sides. First, let us consider those in favour of the Ocado share price. There were no updates from the company itself recently, but based on media reports, I think the share price has risen on a new deal. US-based retailer (and the country’s largest grocery chain) Kroger is now extending its existing partnership with Ocado.
The two first partnered in 2018, with Ocado to build customer fulfilment centres (CFCs) for Kroger. This was extended to providing in-store fulfilment solutions in 2020 as well. An expansion of these elements is now under way to support the retailer in doubling its digital sales by the end of 2023.
This is a positive for Ocado, whose performance could improve further because of Kroger’s potential growth. This follows the turnaround in Marks & Spencer witnessed recently, with which it has a major tie-up in the UK. But that aside, the company has also reported robust sales numbers despite the fact that lockdowns are over.
Analysts bullish on the Ocado share price
Some analysts are also quite bullish on the stocks. According to a Financial Times compilation, the most bullish of them expect the Ocado share price to more than double in the next 12 months. Even on average, at least a 35% rise is expected.
Not everyone expects the stock to do well, though. The more pessimistic analysts expect a 44%+ decline in its share price. Analyst estimates are subject to change, to be sure. As the situation changes, they can be revised up or down. But they do provide a good indication of where share prices maybe headed. And this brings me to the negatives for the Ocado share price.
What can go wrong?
The price may have fallen substantially in the past year, but it is still more than 15% higher than what it was pre-pandemic. And considering that some slowing down in sales growth has been expected at least until now, and it is still loss-making on a net basis, there is not too much of a case for its share price to rise.
What I’d do
Yet I cannot ignore from the fact that it still appears to be going from strength to strength. Also, the economy is recovering, which should continue to hold it in good stead. Going by the sideways movements in broader stock markets in October though, I reckon this may be a largely muted month for Ocado. But over time, I think the rewards will be there to see. I maintain that it is still a buy for me.
