It’s been a miserable year for investors in Ocado (LSE:OCDO) shares. In fact, the online grocery business has the unfortunate accolade of being the worst performing FTSE 100 stock on a 12-month basis.
So, just how bad have the returns been and why? And, is there any chance the share price will recover?
Here’s my take.
Rotten return
The Ocado share price has been in a consistent downtrend ever since peaking in early 2021. Over the past year, the shares have collapsed 62% from £10.97 each to £4.19 today.
If I had had £1,000 to invest in the company a year ago, I could have bought 91 shares, leaving me £1.73 as spare change. Today, my shareholding would have shrunk in value to £381.29. That’s a disastrous return.
Not only have Ocado shares significantly underperformed the FTSE 100 index (if I’d invested in a tracker fund over the past 12 months, I’d have made a positive return), but the company doesn’t pay dividends.
In essence, I’d have no passive income to soften the blow, and my investment would be worth over £600 less than it was just a year ago.
Reasons for the decline
Ocado has a recent history of delivering poor financial results. The company’s pre-tax loss of £501m for 2022 was disappointing. It’s a huge £324m increase on the group’s 2021 loss.
What’s more EBITDA turned negative to the tune of £74m — the first time it has done so in at least five years.
This slump was largely driven by weak trading conditions for the group’s retail arm. The cost-of-living crisis was undoubtedly a factor. So too were falling online shopping volumes after an artificial increase during the pandemic.
Concerningly, net debt now stands at £577m and the group is cutting back on capital expenditure. In the context of these worrying numbers, perhaps it’s unsurprising the Ocado share price has taken a beating as investors lose patience.
A brighter future?
But, is it all bad news for the company?
Expansion is one silver lining. The group doubled its number of operations, with 12 new global sites, including nine additional customer fulfilment centres. It has the Asia-Pacific region in its crosshairs for 2023, with new centres planned in Japan and Australia.
Indeed, Ocado’s International Solutions division delivered impressive 122% revenue growth last year to reach £148m, which offset some of the heavy retail losses.
There’s also no denying the quality of Ocado’s offering. Its end-to-end online grocery fulfilment solutions are highly scalable and should have huge potential, if execution is successful.
Should I buy Ocado shares?
However, I’m worried the business is failing to realise its potential. The pace of new sign-ups is slow and I think the company squandered a golden opportunity during the pandemic — a period in which its business model never looked more attractive.
Moreover, competition in the sector is increasingly cutthroat. The growing presence of German discount brands like Lidl and Aldi means it could be a long and difficult road to profitability for Ocado.
Ocado shares have growth potential, but I fear I’ll have to wait too long for an attractive return on my investment. Recent financial results raise significant concerns for me, so I’d rather invest elsewhere at present.
