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Why Ocado Group PLC Offers More Value Than Lloyds Banking Group PLC & Royal Bank Of Scotland Group plc

Ocado‘s (LSE: OCDO) stock performance reads +26% in the last three months alone. The shares are still down 20% for the year, however. Is Ocado stock cheap?

Well, it certainly is when compared to the shares of Royal Bank of Scotland (LSE: RBS) and Lloyds (LSE: LLOY). What do these three companies have in common?

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Their shares trade broadly in line with the average price target from brokers.

Ocado Delivers

Ocado has been one the most debated IPOs in the UK in recent years. Its management team has come under the spotlight more for their banking background than for financial goals and plans.

The press and brokers have never really liked Ocado. Time and again, they have blamed ambitious capex plans and little diversification from its main revenue driver, Waitrose. 

Quarterly results last week showed Ocado is a healthy business, with a sound balance sheet. The bears may argue that forward sales and Ebitda multiples of 2x and 30x , respectively, point to downside for the shares, but Ocado is growing revenues and adjusted operating cash flow (Ebitda) at a fast pace. Of course, it doesn’t pay dividends. So what? 

As a reminder, Ocado stock has risen 350% in the last couple of years. 

Its one-year stock performance reads -17%, but in the last 12 months, the average price target from brokers has gone up by 40%, to about 360p. Ocado now trades at 361p. Very rarely has Ocado traded below consensus estimates: in fact, in the last 18 months, its shares have changed hands above consensus estimates by a rather big margin. 

Trends for “click and collet” does not pose a threat to Ocado’s business model in the short term. 

LLoyds and RBS

LLoyds and RBS are not growing much, really; their capital position isn’t very strong; they operate in a very competitive sector; they are faced with tough regulations, which are getting tougher and tougher; and the government still owns a stake in both banks. Enter consensus estimates. 

In the last 12 months, the average price target from brokers has gone up by 10% for RBS, and is now in line with its market value. RBS stock has dropped almost 10% in the last few days, as volatility has come back with a vengeance (up from 13 to 21, +62%, in the last five trading sessions).

Meanwhile, only a few days ago, Lloyds stock traded above 80p, some 7% below consensus estimates, which have risen by less than 10% in the last 12 months. The shares now trade at 76p. Is this an opportunity? 

It isn’t easy to determine what’s going to happen next, but as I have said for some time, RBS’s restructuring story offers more potential than Lloyds, and I reiterate the view that it is unlikely Lloyds will resume dividend payments any time soon. 

So, I’d bet on Ocado in 2015. 

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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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