Throughout history, the best stocks to buy have often been unpopular. Why? Because tremendous hidden value ends up being overlooked by the market, only to be discovered later on and deliver ginormous returns.
Looking across the spectrum of UK shares in 2025, Ocado (LSE:OCDO) definitely seems to be in the unpopular category right now. The online grocery retailer and warehouse robotics pioneer has seen its share price fall yet another 41.6% since August, bringing its five-year performance to a painful 89.5% loss.
That means anyone who bought £1,000 worth of shares in December 2020 has only £104.80 left.
Obviously, the situation’s dire. But what exactly happened? And could we actually be looking at a phenomenal buying opportunity for a long-term recovery story?
Robotics are expensive
Between 2017 and 2020, Ocado could seemingly do no wrong. The prospects of warehouse automation paired with the rise of its online grocery business created enormous excitement among investors. So much so, they were willing to overlook the enormous capital expenditures required to get their robotics developed and deployed.
During this ‘honeymoon’, Ocado shares skyrocketed over 750%. But it all came crashing down when higher interest rates came knocking. At near-0%, investors were happy to wait for long-term earnings. When interest rates jumped to 5%, investors were more concerned about profits than revenue growth. And for Ocado, the losses just kept growing.
Ocado’s downward trajectory isn’t just about a shift in investor sentiment. Surging energy costs in 2022 made its automated warehouse technology expensive to run. Simultaneously, online grocery demand normalised following the pandemic. And together these forces put more pressure on supermarkets’ already razor-thin margins.
This all culminated in the announcement that some investors were dreading. Its long-time partner, Kroger, announced a review of its Ocado-powered warehouses. And just earlier this month, the company confirmed it was closing three of these sites and cancelling plans for another.
Needless to say, that’s a pretty clear signal that Kroger’s struggled to find value in Ocado’s offer. And with another supermarket, Sobeys, hitting pause on its new Ocado warehouse project, investors are rightfully questioning the future of this business.
Time to buy?
While Kroger’s shutting down three sites, it still has five remaining operational. What’s more, the company’s paying Ocado $350m to break its agreement with the business.
That’s a substantial cash injection, which actually solves Ocado’s near-term liquidity problems, allowing management to pay off soon-to-mature debts without diluting shareholders.
This also serves as a handy reset point where the company can potentially switch focus from unprofitable growth to profitable cash generation. And with non-grocery sectors yet to fully explore, such as pharmaceuticals, the addressable market for its warehouse automation technology could be enormous if operating margins are expanded.
As things stand, that’s a big ‘if’. There’s no denying that Ocado shares look cheap. But I think there are far better recovery stocks to consider buying with lower levels of risk as we enter into 2026. Luckily, with a trading update expected in January, investors may not have to wait long to discover how management intends to deploy the $350m.
