Interactive Investor

Ocado earnings soar, but what does that mean for investors?

10th December 2020 10:32

Richard Hunter from interactive investor

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Covid-19 lockdowns increased demand for home deliveries, but the grocer’s share price rise may not continue.

Whether Ocado (LSE:OCDO) can continue to feed ever hungrier expectations remains to be seen, but this trading update may keep the bears at bay for the time being.

Within Ocado Retail, its joint venture with Marks & Spencer, the company had previously increased earnings estimates for the full year from £40 million to £60 million. Following another spike in revenues, this figure has risen again to £70 million, according to the company’s third quarter results today.

Higher online demand, helped by the tailwind of a second national lockdown, saw revenues increase by 35% in the period year-on-year, with the company now averaging 360,000 orders per week, up 3% on the previous year. 

The company is also due to open three new warehouses next year, which should increase capacity by 40%.

At a group level, however, the lack of meaningful immediate profitability or a dividend, along with a recent £1 billion fundraising, could be viewed as potential red flags. 

While the company provides investors with two bites at the cherry, as both a traditional retailer and a high-tech innovator through its Solutions business, the ability to surprise will inevitably become more difficult.

The recent share price wobble after the announcement of a vaccine and therefore a potential slowdown in online shopping has done little to move the overall dial. 

The potential for the company remains unquestionably huge. Its shares are up 93% over the last year, as compared to a dip of 9% for the wider FTSE 100

However, an increase in the price of over 560% over the last three years is asking some questions of whether the shares can maintain such a trajectory.

Indeed, there may have been investors choosing to bank some profits of late, with the market consensus of the shares recently having slipped to a ‘sell’.

This may prove to be temporary, but nonetheless underlines the great expectations now following the stock.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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