It has been a ridiculous few months for the online grocer. Between late November and mid- March the stock climbed a whopping 154%, allowing Ocado to briefly cross £6 for the first time in just over 4 years. That remarkable rise also leaves the stock just 25p or so away from the record peak it struck back in February 2014. Ocado Group PLC now sits at a current trading price of £5.87.
So what exactly has gotten investors all in a tizzy? Well, Ocado finally delivered a long-awaited international tie up, not once but twice! First in November it revealed a huge deal with France’s Groupe Casino, one that includes the implementation of the Ocado Smart Platform alongside the building of an automated warehouse, complete with the UK firm’s cutting edge robotics, outside Paris.
If that wasn’t enough, Ocado then went and did it again in January, announcing a similar agreement with Sobey’s, the second largest food retailer in Canada. Like with the Groupe Casino deal, Ocado will build a customer fulfilment centre in Greater Toronto, while helping Sobey’s launch its own online delivery service.
There’s also been speculation that Ocado could have something even bigger in its future. Analysts at Peel Hunt argued that Amazon’s entrance into the supermarket sector with its purchase of Whole Foods could spark a ‘bidding duel’ for the UK firm between the likes of Walmart (NYSE:WMT) and Kroger (NYSE:KR) as they seek to compete with the tech behemoth.
Yet all of this comes at a cost. Though early February saw the company post a 12.7% rise in group revenue for its financial 2017 to £1.46 bullion, it swung from a pre-tax profit of £12 million to a loss of £500,000 year-on-year. Ocado also said that its 2018 EBITDA would ‘reflect the fixed costs’ of improving its technology, a comment many analysts took to be a covert profit warning, while raising £150 million through a 5% share placing.
In terms of the firm’s first quarter statement, investors are of course going to want to see some positive retail sales figures. However, that may not matter as much as any update on its ambitious tech plans, and when the company can expect its tech-expansion to yield some substantial financial payback.
Ocado Group Plc (LON:OCDO) has a consensus rating of ‘Hold’ alongside a consensus target price of £4.10.
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