Should I buy, as the Ocado share price perks up on FY results?

The Ocado share price is steady, as the online retail giant reports a big fall in 2023 losses. Is it one to buy in gloomy times like today?

| More on:
Young happy white woman loading groceries into the back of her car

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Ocado (LSE: OCDO) share price picked up a couple of percent early on 29 February, in response to FY 2023 results.

The shares have had a very erratic ride, soaring when the pandemic hit. Everyone stuck at home meant bumper sales for online retailers, right? Sure, until the Covid threat faded. And then Ocado shares slumped.

We’re now looking at a five-year fall of 50%. But what do these latest results say? And more importantly, is this a good time to buy?

Profit?

Ocado posted adjusted EBITDA of £51.6m. And that’s a £125.7m improvement on the £74.1m loss in 2022.

It looks like there’s still some way to go to see a positive bottom line, though. The group recorded a loss before tax of £393.6m in the 52 weeks. That’s still a £107.2m improvement on the prior year.

It all appears to be due to a rise in depreciation, amortisation & impairment charges to £395.9m. And that, it seems, is down to “internally generated intangible assets.” And “the continuing roll-out of OSP hardware and software at our CFC sites,” and things like that.

An investor could get lost digging through details of what turns a decent EBITDA into a big loss before tax. But that’s why I prefer to invest in companies whose accounts are easier to follow. I like stocks where things like operating profit and EBITDA are not a million miles away from bottom line earnings for shareholders.

Cash

The firm recorded an underlying cash outflow of £473m, which sounds like a big cash burn. But it’s actually £356m better than 2022, and “well ahead of guidance of +£200m.”

At the end of 2023, the balance sheet held cash and equivalents of £0.9bn, with gross liquidity of £1.2bn. There’s no pressing need for more cash right now, it seems.

Still, forecasts show losses continuing until at least 2025. The scale is falling, but earnings per share (EPS) losses look set to come down only slowly.

I’m still unsure about Ocado’s liquidity and the time it might take to reach sustainable profits.

Dispute

I also find a dispute with Marks & Spencer more than a bit off-putting. After Ocado Retail failed to meet some key performance targets, a contingent £191m payment from M&S will not automatically happen now.

Ocado insists the deal allowed for some target changes, and will not walk away quietly. The group says it might need to take legal action to settle the argument.

What this ultimately means in financial terms is up in the air now. But it doesn’t boost confidence to see such a high-profile partnership turning a bit sour like this.

Time to buy?

There are far too many uncertainties here for me to buy Ocado shares now. This is a far cry from the established, profitable stocks paying good dividends that I like.

Then again, for growth investors, a time like this might be a great time to buy. I think the stock could climb when interest rates fall and the economy turns round.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Ocado Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Caucasian woman holding up four fingers
Investing Articles

7%+ dividend yields! 4 FTSE 100 shares for investors to consider buying in April

These FTSE shares offer dividend yields comfortably above the index average of 3.7%. Here's why they could be good passive…

Read more »

Dividend Shares

£10k in an ISA? Here’s how to generate a ton of passive income

Passive income can provide a lot more financial freedom and security. Here’s an easy way to generate some within an…

Read more »

Investing Articles

The Aviva dividend yield’s already over 7%. Could it go higher?

Christopher Ruane explains why he thinks the Aviva dividend could be on course to grow this year and beyond. Might…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

2 shares I’d buy to try and double my money in 10 years

Stephen Wright thinks there are still opportunities to to buy UK shares that can double in value over the next…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

NIO stock has crashed! Here’s why I still wouldn’t touch it with a bargepole

I've been watching NIO stock falling heavily, and wondering when might be a good time to get in cheaply. Here's…

Read more »

Investing Articles

Why have Rolls-Royce shares fallen this week?

Rolls-Royce shares remain the best performing on the FTSE 100 over the past year, but there's been some pullback. Dr…

Read more »

Investing Articles

With a 4.3% yield, I consider this FTSE company an exceptional investment

Oliver Rodzianko say this FTSE company is focused on quality and long-term survival. As such, he thinks he'll hold it…

Read more »

Investing Articles

How I’d invest £10,000 in a Stocks & Shares ISA and aim for a £45,500 second income

Millions of us aren’t earning the second income we deserve. Here, Dr James Fox explains how he’d get his savings…

Read more »