When stock markets are open, I usually start my working day by searching for the FTSE 100‘s biggest fallers. As a bargain hunter, I aim to buy shares that are down just before their fortunes change. And what keep cropping up almost daily are Ocado (LSE: OCDO) shares.
The stock slumps
On Monday (5 June), the share price closed at 343.4p, its lowest close since December 2017. What’s more, the shares hit their 52-week low of 342.4p earlier that day.
On 30 September 2020, the stock hit a record intra-day high of 2,914p, but has crashed so hard since that the group’s valuation has plunged below £3bn.
Indeed, these latest price drops nearly caused Ocado to be ejected from the FTSE 100. By a minor miracle, the stock avoided relegation to the FTSE 250 in the latest index reshuffle.
Here’s how the shares have performed over eight timescales:
| One week | -11.1% |
| One month | -26.5% |
| Three months | -32.0% |
| Six months | -46.6% |
| One year | -61.5% |
| Two years | -80.6% |
| Three years | -83.5% |
| Five years | -60.1% |
When I look at this table, I see broad and prolonged price falls. This stock has lost almost a third of its value over three months, nearly half over six months, and over three-fifths in one year.
In addition, Ocado shares have been an utter dog over two, three and five years. Note that these figures don’t include cash dividends as the group has never paid any out.
I’ve been one of the biggest sceptics
Since the shares were riding high in 2020-21, I’ve repeatedly turned down the opportunity to buy Ocado at prices far above today’s levels. At its peak, the group’s market value hit £21.9bn. Today, it’s worth less than a seventh of that. Crikey.
But history has taught me that share prices don’t move in straight lines. Unless a company eventually goes bust, it usually turns the tanker around. So I wonder what it would take for this to happen at Ocado?
Since it floated in London in mid-2010, Ocado has racked up cumulative losses in the billions of pounds. Yet its partnership deals with major supermarket chains worldwide must be worth something. The same goes for Ocado Retail, its UK joint venture with Marks and Spencer Group (whose shares have soared 51.9% in 2023).
What might revive it?
The problem with valuing this stock is that the usual fundamentals (price-to-earnings ratio, earnings yield and dividend yield) simply don’t apply, because Ocado is loss-making.
Earlier on Monday, one thought sprang to mind: what if M&S decided to take control of Ocado by launching a takeover bid for its partner? Typically, stock prices soar when such bids are unveiled. Then again, M&S itself is valued at below £3.7bn, so buying the business would be a massive risk for the supermarket chain.
Another possibility is that Ocado’s sales growth will improve, lifting its cash flow and dragging the company into profitability. Then again, in the 13 weeks to 26 February, year-on-year retail revenue growth was a mere 3.4%.
In conclusion, I’m unable to say whether Ocado stock is the bargain of the century, or whether it’s heading to zero. But one thing I do know is that these shares seem too risky for me to buy today!
