Ocado failing to deliver: Are we all losing patience with this perennial 'jam tomorrow' stock?

Last updated: 22:15 British Summer Time, 21 July 2023

Ocado made a dazzling entrance into the British grocery market in the year 2000. Right from the start, it was known for its state-of-the-art advancements in online shopping and commitment to providing high-quality, nutritious products. The selection of the name "Ocado," inspired by the avocado, a desirable and luxurious fruit, perfectly matched the image of an upscale grocery store.

After that, Ocado, which is currently a part of the renowned FTSE 100 index, has consistently remained in the spotlight.

You can often spot its delivery trucks on the streets, but this company is also at the forefront of revolutionizing ecommerce fulfillment centers. Their commitment prevails: 'We are determined to transform the shopping experience worldwide, forever.'

People appreciate its goals, but they are also discontent with the extent of its financial losses. Even in the year 2027, these losses could amount to a significant £115 million annually.

Richard Hunter from Interactive Investor refers to Ocado as a stock that always promises great future returns but never delivers. Since its initial public offering in 2010, its shares have increased by 324%, but they have dropped by 78% since reaching their highest point of 2895p in September 2020, during the time when ecommerce stocks were all the rage.

Could the shares possibly reach this level again, giving investors the opportunity to try the £7.50 Daylesford Organic ginger and rhubarb preserve from Ocado? Or will it always be uncertainty about the future of the company?

According to analysts who track Ocado, the average predicted price for its shares is 841p, which is higher than the current price of 687p. However, it is worth noting that there are still many investors who have shorted Ocado's shares, indicating a lack of confidence in the company.

Defying these and other negative thinkers, the price surged by 20 percent in the past week, as the positive feelings about the half-year results outweighed any doubts about the future.

Even though the total losses have reached £289m, the Technology Solutions sector has finally started generating a positive income.

This program grants authorization to supermarkets across the globe, like Aeon in Japan and Kroger in the US, allowing them to employ robotics technology for efficient product selection at their customer fulfilment centers (CFCs).

According to Chris Beauchamp, the top market analyst at IG Group, the progress made by Tech Solutions serves as a reminder that the main aspiration for Ocado shares is to permit their technology for use by a wide range of people across the world, instead of solely being limited to a UK supermarket. William Woods, from brokerage firm Alliance Bernstein, has stated that there is absolutely nothing that can rival the automation achieved by Ocado.

During the month of June, the stocks experienced a significant increase due to speculations about potential acquisition offers from two entities: the renowned tech company Amazon and Lingotto, an investment fund supported by the Italian Agnelli family and led by former UK chancellor George Osborne.

Clive Black, the research leader at Shore Capital and someone who doubts Ocado's potential, dismisses these reports as 'false takeover rumors', highlighting the apparent absence of any action from the Takeover Panel. Some individuals suggested that the speculation arose when Ocado faced the possibility of being removed from the FTSE 100 due to its lower market value.

Some argue that Amazon, the company that is the owner of Whole Foods, might be discouraged by the expenses involved in implementing Tech Solutions due to the currently elevated interest rates.

If you're considering investing in Ocado right now, you're essentially placing your trust in the future success of Ocado's Customer Fulfillment Centers (CFCs). However, Baillie Gifford and other experts are optimistic that the company's customer base will continue to grow.

The person in charge of managing the funds comes in as the second-largest investor, possessing a 12% share divided among various funds such as Edinburgh Worldwide and Scottish Mortgage (I personally invest in these).

However, investing in the stocks at this moment is also a risk regarding the retail branch, which still generates 86 percent of the company's earnings. The partnership with Marks & Spencer is progressing towards profitability, as stated by Ocado CEO Tim Steiner.

On the other hand, Stuart Machin, the head of M&S, is displeased with the performance of the department – and neither is chairman Archie Norman. Ocado Retail is attracting more customers; however, there is a chance that M&S could avoid making the last payment for the agreement next year. The amount owed has already been decreased from £190m to £78m.

As someone who owns shares in M&S, I'm also dissatisfied. Even though the company's shares have increased by 62 percent this year, its efforts to improve would benefit from a stronger contribution from the partnership.

Since 2009, I've been using the Ocado app, but I've noticed that the deals are not as attractive as before. Families who are mindful of their expenses desire affordable prices, but they also want some pricier indulgences. I can't help but question if these luxurious items are being showcased in an enticing way. Additionally, it seems like the M&S products are not receiving as much promotion on the app compared to the previous brand, Waitrose.

Due to what Hunter refers to as 'difficult and slow advancement', experts classify the stock as a 'hold', although he also mentions that it is a 'firm hold'. If you are interested in supporting an innovative UK technology company, even supporters like Woods emphasize the necessity of adopting a long-term perspective of three to five years.

There is no assurance that Ocado will provide the service – however, wouldn't it be fantastic if they did?

Is Ocado's Failure To Deliver Testing Our Patience With Its Promises?

Certain hyperlinks in this blog post can potentially generate revenue as affiliate links. By clicking on them, we receive a small commission which contributes to the funding of This Is Money, ensuring that it remains accessible without charge. It is important to note that our main aim is not to endorse any particular products. Our editorial independence remains unaffected by any commercial associations.