With the FTSE 100 close to hitting fresh record highs, some investors are jubilant. However, based on company-specific factors, I’m staying away from some UK shares. Here are two I’m avoiding right now, along with the reasoning behind my view.
Struggling for takeoff
The first is Wizz Air (LSE:WIZZ). The stock is down 52% in the past year and recently hit 52-week lows. A big chunk of this loss came in early June, when full-year results showed a disappointing performance and a rather bleak outlook.
In fairness, the bad results were somewhat expected after the airline issued two profit warnings in under six months. On each occasion, it warned of continued losses and uncertainty leading to share price drops. The results show a reported operating profit drop of 61.7% year on year to €167m, missing analyst expectations.
Net debt rose by 3.5% to almost €5bn, making it one of the industry’s most heavily leveraged airlines. Wizz suspended its forward guidance due to operational uncertainty and geopolitical issues, which was another factor that really eroded my confidence in considering the company right now.
Of course, this could be an excellent opportunity to buy the stock at a cheap price. Cash levels are high, and so the company can likely survive in the near term. If the management team can focus on cutting costs and streamlining operations, it could emerge on the other side in a stronger position.
Lacking a wow factor
Another company that I think is struggling is Ocado Group (LSE:OCDO).The stock is down 26% in the last year, and at 236p, is only a few pence off the 52-week lows.
Part of Ocado’s long-term growth case involves licensing its automated warehouse (CFC) solution to partners. Yet, progress in this area has stalled recently, with rollouts not progressing at the pace many were expecting.
Another problem remains the lack of profitability at a group level. It reported a pre-tax loss of hundreds of millions last year, the same as the year prior. I know that growth stocks sometimes are loss-making for a while as they scale up operations. Yet Ocado is surely big enough to be profitable if it pursues the correct strategy. I just don’t see how the company is going to break even anytime soon, so I would rather look to allocate my money elsewhere.
The company is investing a lot of money in AI, and this could really help it streamline costs and become more efficient. It could also help advance innovative ideas to a level where they are commercially viable.
The beauty of investing is that some investors might see the two shares as attractive value purchases. But from where I stand, I can see much better stocks elsewhere.
