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Before trading, please ensure that you fully understand the risks involved
Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors. Before trading, please ensure that you fully understand the risks involved

Tuesday, July 07, 2020

Ocado's share price keeps on delivering

By Century Financial in Brainy Bull

Ocado's share price keeps on delivering

Ocado's [OCDO] share price has soared 56.5% for the year to date from 1,279p to 2,000p as of 3 July.

Although coronavirus pandemic fears did drive Ocado’s share price to a low of 1,064p on 28 February, it regained much of its composure to hit a new all-time high close of 2,229p on 1 June.

Although it has dropped off this high somewhat, Ocado's share price is one of the clear winners of the lockdown, as elderly, vulnerable and concerned customers unable or unwilling to go to a supermarket physically logged online for food and drink to keep them healthy and happy at home.

Will demand for the UK online grocer continue to drive up its share price?

First half success

Ocado's first-quarter sales revealed a better than expected 10.3% year-over-year growth to over £441m. Furthermore, Melanie Smith, CEO of Ocado, stated that the company saw order demand double in the second quarter.

In a recent trading statement, the company revealed that revenues had rocketed 40.4% in the second quarter to 6 May.

Ocado gas benefited from the opening its first two international automated warehouses in France for Groupe Casino [CO] and in Canada for Sobeys [SBY]. The company said it would not let the pandemic get in the way of its search for new partners to utilise its unique pickup and packing technology.

"Ocado is one of the FTSE 100's top performers this year. With this backdrop, management saw this as an opportunity to capitalise on their strong share run to raise further cash," Russell Pointon, director of consumer and media at Edison Group, told Grocery Trader. "The company would have surely been scared to miss out on investor appetite for online stocks."

Ocado's market cap of £14.9bn as of 2 July towers above that of rivals Sainsbury's [SBRY] and Morrisons [MRW], which sit at £4.3bn and £4.4bn, receptively.

Online ordering trend set to be major tailwind

Ocado’s technology could send its share price even higher in the years ahead, according to Rupert Hargreaves writing in the Motley Fool.

"This side of the business has been slow to get off the ground. While the company has signed several agreements, Ocado will only get paid once its technology is up and running," he said. "The good news is the pandemic should accelerate demand for the company's technology. That would be great news for the Ocado share price."

However, the recent shift to online ordering may have already become ingrained in a growing number of customers. In short, Ocado doesn't necessarily need another lockdown to gain or retain customers.

But there may be some regulatory headaches ahead.

Earlier this week it emerged that the UK government was looking at enforcing online shoppers to pay a green delivery charge given fears over "unnecessary over-ordering".

Stuart Blair, writing in the Motley Fool, feels Ocado's star might wane. "[The stock] is very expensive and I feel that it will decline as the crisis mentality fades," he says. "Ocado has also been unprofitable over the past three years. This means that its current share price is currently based on speculation. Its equity placing is perhaps in expectation of a drop in its share price in the coming months."

Ocado will also need to ensure that any new customers are not left disappointed. Log on to the site today, and there's almost always a message that high demand be hamstring availability.

Despite this, Ocado has an exciting few months ahead of it with its new joint venture with Marks & Spencer [MKS] pencilled in for this September, its online store shining, talk of a move into general merchandise.

But there are roadblocks in the way. Ocado will have to use its new capital wisely if it wants to keep its surging share price on track.

Source: This content has been produced by Opto trading intelligence for Century Financial and was originally published on cmcmarkets.com/en-gb/opto

Disclaimer: Past performance is not a reliable indicator of future results.

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