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Grocery supply and warehouse robotics specialist Ocado Group (LSE: OCDO) is among the most unpredictable shares on the whole FTSE 250. It’s seen huge highs and crushing lows over time, however currently it’s principally been the latter. Till yesterday…
I bear in mind when the Ocado share value shot up round 500% in a few years, fuelled by pleasure over its futuristic tech. Traders made fortunes, then misplaced them once more. The shares are down 38% over the past 12 months, and 76% over 5 years.
Whereas its retail partnership with Marks & Spencer has carried out solidly (regardless of authorized spats), its cutting-edge grocery fulfilment centres have struggled to achieve sufficient clients, regardless of the genius tech. The corporate stays years away from banking a revenue and fell out of the FTSE 100 in June final yr.
I haven’t given up on my Ocado shares
As a real contrarian, I noticed the peak-to-trough 90% drop in Ocado shares as a shopping for alternative. Sadly, the ache wasn’t over, and my stake continued to fall.
However yesterday’s staggering 16.29% surge has softened the blow, because of a very bullish inventory replace from JP Morgan Cazenove.
It upgraded Ocado from Impartial to Chubby, and hiked its value goal from 340p to 400p. If that got here to move, it could mark a 36% improve from right this moment’s 295p. And nearly put me again within the black.
JP Morgan believes Ocado’s world prospects are bettering as conventional supermarkets lastly realise they’ll’t ignore on-line grocery demand without end.
For years, retailers have been hesitant to completely decide to on-line purchasing, fearing it could eat into their margins. As a substitute, they relied on inefficient store-picking programs to fulfil on-line orders. However as digital-first supermarkets and giants like Walmart acquire market share, conventional grocers could also be compelled to put money into scalable tech like Ocado’s. That’s the speculation anyway.
Large progress potential however dangerous
JP Morgan additionally highlighted that Ocado’s margins are bettering in each its retail and options divisions. It may even generate optimistic free money circulate by the top of subsequent yr. That’ll come in useful, on condition that Ocado must refinance round £500m in convertible bonds in 2025/26.
The optimist in me says Ocado’s lastly turning a nook. But when new offers for its robotic centres don’t materialise quickly, investor persistence may put on skinny once more.
Additionally, I’ve been right here earlier than. Ocado shares have jumped by double digits a number of instances within the final yr, usually after a optimistic replace from the retail arm, solely to slip again down.
I’m holding on to my shares, however I’m underneath no illusions. This will probably be an extended and bumpy restoration. Ocado’s potential continues to be large, however the firm wants to begin delivering on its potential. There are not any dividends to ease the ache whereas we wait.
For traders contemplating piling in right this moment, my recommendation can be tread rigorously. This could possibly be a turning level, however it would possibly simply be one other momentary spike.
Regardless of yesterday’s thrilling replace, one factor hasn’t modified. Ocado shares will stay a wild trip. That is one inventory in my portfolio that actually may go both approach.
