Looking across the FTSE 250, few companies have fallen as sharply and as rapidly as Ocado (LSE:OCDO).
The once beloved online grocery and warehouse automation enterprise thrived throughout the pandemic, using its surging cash flows to invest in robotics technology. And within the five-year period between January 2016 and 2021, the growth stock surged by over 741%.
Yet skip ahead to 2025, and these phenomenal gains have all been given back. Soaring energy costs, rising interest rates, underperforming returns for business customers, and the loss of pandemic-driven online grocery shopping tailwinds have dragged its valuation into the mud. So much so that the stock now trades near a decade low.
But with its retailer exclusivity deals now ending and its technology solutions finally starting to generate some underlying earnings, could 2026 be the beginning of a massive and spectacular turnaround?
The bull case
The recent revelation that Kroger is shutting down three of its Ocado-powered customer fulfilment centres (CFCs) understandably shook investor confidence, even though Kroger is retaining others.
While it’s a concerning development, this decision also created a lot of breathing room and temporarily solved the group’s short-term liquidity crisis. That’s because Kroger is compensating Ocado with $350m, giving the company more time to grow its technology profits and allowing the business to refinance its debts that were maturing towards the end of 2026.
Speaking of technology profits, underlying earnings across the first half of 2025 came in at £72.8m – a 109% year-on-year improvement. And assuming there are no more surprise spanners thrown into the works, management is confident in finally becoming cash flow positive in 2026.
Combining all this with the previously mentioned termination of its exclusivity agreements means the business is now free to approach new retailers simultaneously, potentially unlocking multiple new revenue sources in the process.
In fact, this improved financial outlook and superior revenue diversification are why the FTSE 250 stock has already surged by almost 60% since December 2025.
The bear case
While there are multiple growth catalysts seemingly on the horizon, Ocado is by no means a guaranteed success story. A sudden resurgence in energy prices or slowdown in retail spending due to wider macroeconomic pressures could all undermine management’s 2026 cash flow aspirations with little recourse available.
The $350m from Kroger definitely helps. But it’s ultimately only a temporary solution. And consequently, if cash flow generation does underperform, the business could be facing yet another liquidity crisis later on.
Then there’s the question of acquiring new customers. Ending exclusivity does indeed provide flexibility. But convincing other retailers to invest potentially billions into Ocado’s technology when industry titans like Kroger don’t believe in it is undoubtedly going to be a difficult task for the sales team.
The bottom line
Overall, buying Ocado shares today feels highly speculative. Even the recent rally is being driven primarily by expectations of a potential turnaround. But with a long track record of missing targets and disappointing results, this isn’t a stock I’m rushing to buy right now.
Instead, it’s staying on my watchlist. Once the group’s next set of results is presented next month, investors will gain a clearer picture of the progress being made, especially when it comes to cash flow. Until then, I think there are far better FTSE 250 opportunities to explore.
