After falling 25% in a month is this mind-blowing FTSE 250 stock in deep value territory?

Harvey Jones thought FTSE 250-listed growth stock Ocado Group looked good value when he bought it in July. It’s even cheaper today. Time to buy more?

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I bought Ocado Group (LSE: OCDO) in a fit of inspiration in July, but with the FTSE 250 stock crashing 25% this month it looks more like a fit of madness. 

Or rather, a double fit of madness, because I bought the shares twice, on the 22 July and again four days later. So far, I’m down 17.29%.

Created with Highcharts 11.4.3Ocado Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

I can hardly complain. I knew the online grocer and food logistics group was a high-risk stock when I bought it.

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Ocado is a recovery play

The Ocado share price has plunged 88% since peaking at 2,808p in February 2021. I still think it’s been harshly treated by markets, but I seem to be in a shrinking minority.

I thought sentiment might pick up as it edges closer to profitability, but we’re not there yet. Ocado continues to lose money hand over fist as it pours funds into building the business, posting a pre-tax loss of £403.2m in 2023. Revenues are steadily rising but nowhere near fast enough, as my table shows.

Year ending20192020202120222023
Revenue£1.756bn£2.331bn£2.498bn£2.517bn£2.825bn
Pre-tax profits-£214.5m-£52.3m-£176.9m-£500.8m-£403.2m

On 16 July, Ocado shares soared 18% on news that it had slashed its interim six-month pre-tax loss from £289.5m to £154m.

They jumped again on 22 July when the board announced that US grocery giant Kroger had ordered more Ocado kit for its customer fulfilment centres. This followed a similar move by Japan’s AEON.

Ocado’s shares remain the plaything of wider economic sentiment. When investors are bullish, they pile in. When nervous, they flee in a disorderly rush. I was nicely ahead until the 5 August global stock market crash.

Given its volatility, I could easily recover my losses following a single positive set of results. So I’m not too disheartened. We got some good news on 27 August, when the board announced two customer fulfilment centres (CFCs) in Australia were finally operating after a two-year delay. They’re part of its partnership with local grocer Coles. That lifts the global total to 25.

It could either crash or soar

Its high-tech CFCs are mind blowing. They’re powered by the automated Ocado Smart Platform, which CEO Tim Steiner says boosts freshness and speed. If only they could add some freshness and speed to the share price, too.

With 13 of the world’s biggest grocers on board, I still think there’s a terrific opportunity here. Judging by the group’s return on equity, it will remain a case of one step forward, two steps back, though. Let’s see what the charts say.


Chart by TradingView

I bought Ocado as a long-term play and I’ll stick with it. The 12 analysts following this stock have set a median price target of 425p. That suggests 25% uplift from today’s 340p but here’s the thing. The range is huge, from a high of 2,900p to a low of just 230p. I think that tells us everything we need to know about its prospects.

I still think there is plenty of value here, but Ocado remains a binary play. It could go either way. I might play the dip by investing another £1k, but any more would be madness.

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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.

Harvey Jones has positions in Ocado Group Plc. The Motley Fool UK has no position in any of the shares mentioned. 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.

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