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The Ocado share price has doubled in a year: should I buy on today’s dip?

By on July 5, 2021

first_imgThe Ocado share price has doubled in a year: should I buy on today’s dip? Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Today’s results seem to be broadly in line with forecasts, so what might be the problem? I’ve been taking a fresh look at this high-tech growth story.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Sales up 33% in 2020Ocado’s revenue rose by 33% to £2,332m last year. But the group remained loss-making and recorded an after-tax loss for the year of £174m. That’s a slight reduction on the £212m loss reported for 2019.What do these numbers tell me? Ocado’s UK retail business is continuing to make decent progress. Sales rose by 35% last year and the business generated an underlying profit of £149m.However, a retail operation of this size isn’t usually big enough to justify Ocado’s market-cap of £20bn. This reflects its growing status as a technology stock which sells software and automated warehouse solutions to other retailers.Ocado has signed some big deals with supermarkets such as US chain Kroger in the last few years. But these deals usually require Ocado to build new warehouses and set up its system before generating much revenue.Indeed, Ocado generated just £17m of revenue from its international business last year. But the company says that “fees not yet recognised as revenue” rose by 52% to £256m. These fees reflect work completed by Ocado that won’t be due for payment until “a working solution” has been handed over to the customer.The sharp growth in this number suggests to me this business is gaining momentum. I think this is one reason why Ocado’s share price has performed so strongly over the last year.What could go wrong?I have two main concerns about Ocado. The first is that after nearly 10 years on the stock market, Ocado is still losing money. The company’s big projects require a lot of upfront expenditure before they generate any revenue.Ocado plans to invest £700m in new facilities and product development in 2021. Brokers expect the business to report a loss of around £150m in 2021. I don’t like businesses with no clear path to profitability.A second problem is that Ocado has growing competition. One competitor, Norwegian firm Autostore, is currently suing Ocado for alleged patent infringements. Ocado denies the allegations, but the UK firm has warned shareholders that legal costs are expected to rise sharply in 2021.Ocado share price: too high or too low?Based on this year’s figures, Ocado shares are valued at 8.7 times sales and about 280 times EBITDA (a measure of profit before certain costs). This isn’t a valuation I can get comfortable with, especially as Ocado is expected to remain loss-making for several more years.I’ve avoided this stock for many years because I’ve thought it was too expensive. Events have proven me wrong, at least so far. Ocado’s share price has risen by nearly 1,000% over the last five years and the firm has had no problem raising extra cash when necessary.It’s clear there are many deep-pocketed investors who believe Ocado’s business is more valuable than I do. They may be right. But I don’t believe in buying shares that I think are too expensive. I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Our 6 ‘Best Buys Now’ Shares Shares in online grocery retail specialist Ocado Group (LSE: OCDO) have risen by more than 100% over the last 12 months. But investors don’t seem too excited about today’s full-year earnings from the firm. Ocado’s share price is down by 3% Tuesday morning, as I write. “This Stock Could Be Like Buying Amazon in 1997” Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. See all posts by Roland Head Image source: Getty Images Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. Roland Head | Tuesday, 9th February, 2021 | More on: OCDO Simply click below to discover how you can take advantage of this. Enter Your Email Addresslast_img read more

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