There seems to be no stopping Ocado (LSE: OCDO) these days. While much of the FTSE 100 has been hammered by the Covid-19 crisis, the Ocado share price is up nearly 90% in 2020. That includes a 5% boost Tuesday morning, after the groceries delivery firm issued a quarterly trading update.
The surge in online shopping has been really quite staggering, as Ocado reported a 52% jump in revenue. And in the 13 weeks to 30 August, sales grew even faster than the previous quarter. Order sizes peaked in the early days of the pandemic, as people stocked up on big supplies of essentials. But it’s settling now, and the firm is seeing orders averaging £141.
But, I can hear investors asking, what about the Marks & Spencer (LSE: MKS) thing? There were a few hiccups with some orders being canceled due to demand when the sales partnership opened. And that caused the Ocado share price to wobble a bit in the early days following the launch.
Successful M&S launch
But the company told us that the M&S tie-up “is driving strong forward demand including our biggest ever forward order day, on the day of launch“.
The update added that 98% of Ocado’s customers are already buying M&S items. And the average weighting of M&S products in new orders is higher than for Waitrose goods before the shift. M&S food products are clearly very much in demand – such a shame we can’t say the same about its clothing ranges.
Share price boost
Still, the Ocado update did give the Marks & Spencer share price a boost, also up around 5%. M&S shares are picking up from their early pandemic crash. But we’re still looking at a 48% price fall since the start of the year.
Back when Marks & Spencer invested its stake in Ocado, many people thought it had overpaid. And I was one of them. Those thoughts led to a poor spell for the M&S share price, but was it perhaps a canny move after all? The surge in the Ocado share price over the past year is starting to make it look as if maybe M&S got a bargain.
Shift in shopping
Am I considering reaching for the buy button? I reckon we’re really still only in the early days of the online groceries boom. I think it’s a permanent shift, and people discovering the new convenience are unlikely to go back.
As new entrants into the online business emerge, where are they going to go for their operational setups? Ocado is pretty much the only game in town if you want an all-in-one package. That means there could be a lot of business heading its way, and the Ocado share price could benefit.
But I’m stumped by the impossibility of putting any kind of rational valuation on Ocado. There are no profits, we don’t know when they’ll arrive, and it’s hard to work out any meaningful metrics at all.
Ocado share price heading higher?
I do see a lot more potential growth for the Ocado share price, but it’s the kind of unknown growth scenario that I steer clear of. I also wouldn’t buy M&S yet either, not while the rump of its high street business is still in trouble.
To capitalise on the growth of online groceries, I’d buy Tesco myself, and tuck away those lovely dividends too.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.