On 22 June, the Ocado Group (LSE: OCDO) share price spiked up 30%. It’s the kind of stock that can do that from time to time but, so far, the rise seems to have stuck.
It’s all down to rumours of a takeover bid for the company. And its not just anyone we’re talking about here. No, the claim came from The Times, no less. And the alleged suitor is none other than Amazon.com.
The Ocado share price did wobble a bit when an opposing rumour emerged, that Amazon had denied any interest.
No comments
But the only confirmed comment we’ve had from the US online retail giant is that it had no comment.
Ocado has said nothing either, not even to the big news agencies. Reuters has apparently enquired, but nothing was forthcoming.
All we’ve heard from Ocado is news of the appointment of a new independent non-executive director. It’s Rachel Osborne, who will take up the role on 1 September.
She was previously CEO of Ted Baker, and has held executive positions at Debenhams, Domino’s Pizza, and John Lewis. That’s a great track record. But the news sheds no light on the big story of the day.
Are the shares cheap?
Is Ocado stock a bargain? Well, there’s talk is of an offer of 800p per share. With Ocado trading at around the 540p level, at the time of writing, that could mean an instant 48% profit. Cheap? It would be a steal. But only if the bid emerges, as claimed.
Someone with a bit of money to invest seems to like what they’ve seen in this saga. Lingotto Investment Management, a firm owned by Exor (the holding company of Italy’s Agnelli industrial dynasty), has raised its Ocado stake to 5%.
Generally, I turn my nose up at bid rumours. But this was started by The Times. And it has Goldman Sachs and JP Morgan allegedly lined up to manage it. Neither of those has so far commented.
It’s about valuation
For me, a decision like this would have to be based on how I value the stock. Do I think Ocado is worth buying in itself for the long term, on today’s share price?
At Ocado, there’s no profit from which to work out the usual price-to-earnings (P/E) ratio. In fact, Ocado lost half a million pounds before tax in 2022. The losses look set to reduce, but I see no profit on the horizon yet.
Sales have been growing steadily. And there’s a price-to-sales ratio (PSR) of about 1.6 times, based on 2023 forecasts.
Supermarket peer
For a supermarket that looks high. Tesco is on a forward PSR of less than 0.3. But as a developer of online shopping technology, the Ocado PSR might be good.
I’ll keep away for one main reason. I gave up taking the risk of buying on takeover hopes years ago. And it’s saved me quite a bit of cash.
But it would be nice to see Ocado shareholders pocket some reward for sticking with it.
