The Ocado (LSE: OCDO) share price hasn’t completely sunk my self-invested personal pension (SIPP). Thanks to rigorous diversification, the damage is limited. But it’s certainly been a drag – one of my two worst performers, alongside Aston Martin.
Yes, I was daft enough to buy both of these disaster stocks. In my defence, I only threw a bit of cash at Aston Martin for the ride. But I put a larger sum into Ocado and I’ve now lost more than 40% of it.
I’ve made a habit of targeting beaten-down companies in the hope they’ll recover – and done reasonably well out of it. But I’ve also learned a key lesson. Don’t overdo it.
Buying straight after a profit warning, as I did with Ocado, Diageo and JD Sports Fashion, is risky. In my experience, that often marks the start of the trouble, not the end. Better to let the waters settle and wait for signs of a recovery than go bottom fishing too early.
FTSE 250 flop
The grocery delivery specialist and tech group is a nightmare to own. The numbers are a sea of red. Its shares have dropped 88% over five years, 25% over one year, 17% in a month and nearly 9% in the last week. At today’s (22 June) 234p, they’re only just above their 52-week low. They were trading higher in 2013. There’s been no dividend to soften the blow.
There’s no profit on the horizon, and won’t be for years. Yet oddly, whenever the company posts an update or deal, the shares spike. There are flickers of hope.
Similarly, when confidence returns to markets – perhaps after upbeat growth data or interest rate cut speculation – Ocado tends to bounce. It’s a classic risk-on stock. But the bad days far outweigh the good ones, and with economic growth under pressure, that won’t change any time soon.
Glimmers of promise
There was a tiny ray of light on 18 June. Ocado said it will build a new customer fulfilment centre (CFC) in Catalonia, expanding its long-term partnership with Spanish grocer Bon Preu.
Ocado’s tech arm has suffered from a lack of fresh contracts. It will need a lot more to justify the huge investment poured into robotic CFC tech.
Its online grocery joint venture with Marks & Spencer is doing better. According to NielsenIQ data, Ocado Retail saw sales jump 18.3% in the 12 weeks to April, easily outpacing Tesco and Sainsbury’s. But market share remains tiny at just 1.9%.
Still waiting
Back in March, JPMorgan Cazenove upgraded Ocado to ‘overweight’ and lifted its target price from 340p to 400p, noting improving margins and a more attractive valuation after the drop. The boost didn’t last long.
Six analysts have produced a median 12-month price target of 292.8p. That’s a potential gain of around 25% from today’s level. Two even rate it a Strong Buy. I’m more cautious.
The one thing stopping me from selling is that it would mean banking my biggest ever stock loss. The leftover sum might work harder elsewhere, but it’s not much money now.
Ocado reports interim results on 17 July. In the past, that has triggered a short-term bounce. It usually fades fast, but even a small recovery would reduce my losses.
So I’ll wait and reassess next month. For now, I’m stuck watching the red ink spread.
