If you can grow your share price while the stock market crash is destroying everybody else’s, your name must be Ocado Group (LSE: OCDO). The Ocado share price is up an astonishing 36% in the last week, as stockpiling shoppers overload its website and app.
The online supermarket has now shut down its online operations until Saturday. That will give it time to work out how to create more delivery slots during the coronavirus outbreak, which has placed “unprecedented strain” on the business. It’s also stopped taking new registrations. Plenty of other companies on the FTSE 100 wish they had its problems right now.
The Ocado share price is now up 300% over the last five years despite the stock market crash. That’s in marked contrast to the 30% drop across the FTSE 100 as a whole.
Crash and carry
This morning, it reported a 10.3% rise in revenues at Ocado Retail to £441.2m over the first quarter to 1 March. In today’s trading statement, CEO Melanie Smith said growth has doubled so far in the second quarter. It was driven by Covid-19 fears, although the impact of forward buying would “unwind at some point.”
Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, reported a 10.2% increase in average first-quarter orders to 343,000. Average order size was up 0.3% to £110.24.
This is all very positive as other companies battle to survive the stock market crash. But the Ocado share price is a tricky thing to value right now. Ocado Retail, its pure-play online grocery business, is only part of the story.
Smart work
The real motivator here is Ocado’s Smart Platform, the technology behind its online grocery business. It’s selling worldwide, giving retailers a faster, more cost-efficient and lower-risk way to develop an online grocery business. This spares them the effort and expense of setting up their own robotics and algorithms.
Basically, investors are pricing in future growth from overseas expansion. But Ocado Group has made a pre-tax loss in each of the last three years, with its Andover warehouse fire in February 2019 only partly responsible for recent slippage.
City analysts expect the trend to continue, pencilling in a loss of around £130m in both 2020 and 2021, as management invests in the future. Basically, you’re ordering jam tomorrow, as Ocado rolls out its ‘solutions’ deals in Europe, Australia and North America. This includes operating 20 automated warehouses for Kroger, the biggest supermarket chain in the US.
Ocado Retail also has to work hard to make its M&S hook-up work, and will be hoping customers will stay loyal when Waitrose moves on. Waitrose has a small proportion of the grocery market, but its customers are loyal, and it’s now developing its own online shopping tool.
I’d be a little wary of rushing into Ocado right now. The recent spike may prove short lived, once shoppers and investors calm down. So I’m prioritising companies whose share prices appear unfairly punished by the stock market crash, rather than temporarily elevated.