I’m consistently hunting for the best UK shares to help bolster my holdings.
However, two stocks I personally don’t like the look of are Ocado (LSE: OCDO), and Burberry (LSE: BRBY). Although I’m not planning on buying shares anytime soon, I’ll continue to keep an eye on developments.
Let me explain my reasoning.
Ocado
Perhaps best known as one of the largest pure online grocers in the world, there’s more to Ocado as a business. It also possesses a technology arm where it offers an online platform for grocery fulfilment to sell to other firms to help operations run more efficiently.
The Ocado share price has been on a downward spiral for some time, and the past 12 months is no different. The shares are down 61% in this timeframe from 878p at this time last year, to current levels of 336p.
My decision to avoid the shares stems from a few key facts. Firstly, the business continues to post consistent losses. In fact, it hasn’t turned a profit yet, which is a big red flag for me. Next, it continues to plunder cash hand-over-fist into the business to help turn around its fortunes. This expenditure isn’t ideal from an investor perspective, although I’m conscious that in most cases you have to spend money to make money. Finally, the grocery sector is extremely competitive, and there are often razor-thin margins involved.
From a bullish view, there’s an argument that Ocado shares could be a long-term recovery play. For example, recent results show revenues are slowly edging the correct way, and losses are shrinking. Plus, the tech side of the business does potentially possess exciting growth opportunities. At present, 13 of the world’s biggest grocers have signed up to the platform.
However, there are too many red flags that mean the cons outweigh the pros for me at this time.
Burberry
I’ll be the first to admit I love Burberry items, especially the famous chequered print it’s become famous for.
However, the shares have had a terrible time of things in recent months. They’re down a mammoth 70% over a 12-month period from 2,200p at this point last year, to current levels of 650p.
Economic turbulence — including higher interest rates, inflation, and geopolitical tensions across the planet — have created a cocktail for disaster. The demand for luxury goods has been impacted.
Due to these issues, Burberry’s performance has been hurt badly. Sales have been dropping sharply, and its key markets, such as China, have been in turmoil. For example, a Q1 report released in July showed store sales dropped 21% compared to the same period last year. Continuing economic issues in China could mean things will be bumpy for a while.
Similar to Ocado, I can’t help thinking there’s a recovery play when it comes to Burberry shares, too. The shares trade on a price-to-earnings ratio of just under nine. The historical average is much higher. If economic turbulence dissipates, earnings could bounce back.
Finally, Burberry is losing its FTSE 100 status as part of the recent reshuffle. Its removal after many years at the top table is a huge blow.
I’m going to keep a close eye on Burberry shares, but right now I’m not convinced.
