The Ocado share price just jumped 25%. Time to buy?

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Recently, the value of stocks for the Ocado Group on the London Stock Exchange (LSE: OCDO) has been showing poor performance.

In the past five years, the value of Ocado has decreased by more than half. However, this decline is not as bad as it seems. In 2020, Ocado was highly regarded as a rising star in the realm of shopping technology. It was soaring high, but since reaching its peak that year, the price plummeted a whopping 80%.

The value of Ocado shares increased significantly by 25% during Thursday's early trading. What could be the reason for this sudden surge? Is it possible that a new optimistic phase in the stock market is about to begin?

The main topic of discussion revolves around the possibility of a buyout occurring. According to a report from The Times, the United States company Amazon.com may be considering the acquisition of British online grocery company Ocado. There is speculation that Amazon could offer approximately 800p per share for the buyout. This proposed bid would be an 85% increase from the share price at the end of trading on Wednesday.

I believe I understand why Amazon may be interested. Ocado gained a lot of popularity during the pandemic, but now it's not as popular and its stock prices are at their lowest point since 2018.

It seems like there is an opportunity for the industry to merge and become more efficient. Additionally, if a company is considering purchasing Ocado, now may be a favorable moment to do so.

Ocado is still facing issues with profit, having experienced a loss of £500m before tax in 2022. Despite inflation causing some problems, the situation was even worse than anticipated by analysts.

The partnership between Marks & Spencer and Ocado didn't receive favorable news. Despite the recent increase in Ocado's stock value, it hasn't caused a significant impact on the value of M&S's shares.

At present, it is possible that profit is not of great importance to a company such as Amazon.

I presume that the US retail behemoth may be interested in obtaining Ocado's warehouse and distribution system in the UK, its advanced technology, and its share in the market. This could be a more viable and economical option for them compared to Amazon creating its own network from scratch.

I want to emphasize that the information circulating is currently only based on hearsay, as indicated by the newspaper. Neither side has made any official statements. It's important to not jump to conclusions about a potential offering as it may not be accurate.

Purchasing shares with the expectation of an acquisition can be hazardous. This caused Cineworld shareholders to incur losses in the past, when they acquired shares believing that a guardian angel would come to their rescue.

Putting that aside, is it possible that one of the FTSE 100's largest underperforming companies of 2023 is at a crossroads? Would it be wise to invest in it at this moment?

In my opinion, I wouldn't purchase a stock with the intention of it being acquired. Rather, only if I found a company appealing and planned on owning it for a minimum of a decade would I consider buying.

The challenge with buying based on speculation is that I have witnessed numerous instances of it failing. The cost goes up due to hearsay, you purchase it, there is no offer, the cost decreases, and you suffer a loss.

At the moment, it appears that Amazon may benefit from acquiring Ocado. However, from my perspective, I do not deem it as a wise investment.

The blog entry titled "Is it a good idea to purchase now that the Ocado stock price surged by 25%?" can be found on The Motley Fool UK site.

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The Motley Fool's panel of directors includes John Mackey, former CEO of Whole Foods Market, which is now owned by Amazon. The author of this article, Alan Oscroft, has no personal investment in any of the companies mentioned. However, The Motley Fool UK recommends both Amazon.com and Ocado Group Plc. Please note that the views presented in this article are only those of the author and differ from the official advice provided in our exclusive subscription services, such as Share Advisor, Hidden Winners, and Pro. We at The Motley Fool believe in gathering a diverse range of perspectives in order to become better investors.