The Ocado share price: is it time to pile in?

The Ocado (LSE: OCDO) share price has produced one of the best performances of all FTSE 100 stocks in 2020. Investor sentiment towards the online delivery group has improved dramatically since the beginning of the year.

The massive shift in consumer behaviour brought on by the coronavirus crisis has helped the company gain market share and move closer to its long-term profitability goals. However, after its recent performance, the Ocado share price looks a bit on the pricy side. So, should investors wait for a pullback before buying into this growth story? 

Ocado share price growth

The Ocado share price currently values the business at £16bn. That seems like a lot for a company that has yet to produce any profits or cash flow. 

However, the business does have tremendous potential. Its latest trading update revealed the group had more than 1m people on a waiting list for its UK grocery service. On top of this, sales in the six months to the end of May increased 27% year-on-year. 

Thanks to larger order baskets and efficiencies across the group, earnings before interest tax depreciation and amortisation (EBITDA) at Ocado’s UK retail business jumped 87% in the first six months of its current financial year. 

Unfortunately, after taking out financing costs and depreciation and amortisation, the group reported a substantial loss for the first half of the year. Ocado lost a total of £41m. On top of this cash outflow, the company also devoted £219m to capital spending. 

Despite the company’s losses, its recent performance shows the retailer is becoming a feature of the UK grocery market. This could have a significant positive impact on the Ocado share price in the long term. 

Technology champion

On top of the company’s UK retail business, it’s also a leader in the provision of technology solutions for international retailers. The group designs and develops robotic warehouses for retailers around the world.

The global pandemic has accentuated the need for these sorts of solutions. That’s the main reason why investors have been buying the Ocado share price this year. 

As such, I wouldn’t be surprised if Ocado signs a range of new deals in the months and years ahead as retailers look to future proof themselves from future outbreaks. This technology gives the company a substantial competitive advantage in the global retail industry. 

All in all, Ocado is one of the UK’s fastest growing retailers. It’s also a world-beating technology company. These qualities could mean the Ocado share price is highly attractive for long-term investors. The business may rack up further losses in the short term, but its focus on investment over probability could pay off in the long run. 

If the group’s technology becomes highly sought after in the global retail community, it could also become a takeover candidate. The world’s largest tech firms may want to get in on the action here, especially those with a retail operation who want to reduce costs and streamline distribution.