The rise and remarkable downfall of Ocado Group
Ocado (LON: OCDO), the e-commerce and logistics provider, has had a remarkable fall from grace. Once seen as the UK’s Amazon, the company’s growth has stalled and is now being kicked off the blue-chip FTSE 100 index.
Ocado Group growth has stalledCopy link to section
Ocado Group, the parent company of Ocado Retail and Ocado Solutions, has been under pressure in the past few years. Its retail business operates through its joint venture with Marks and Spencer. Ocado Solutions provides grocery solutions to companies like Kroger, AEON, Groupe Casino, Lotte Shopping, and Sobeys among others.
Ocado Group’s business is struggling. For one, the company’s logistics business has not grown as fast as expected in the past few years. The same is true with its e-commerce business, which is growing at single digits.
In all, results compiled by SeekingAlpha shows that the company’s revenue jumped to £2.51 billion in the past financial year. That was a small increase compared to the previous year’s £2.49 billion.
The biggest challenge for Ocado is that its business has not been profitable in the past few years. Its net loss in the last financial year came in at £455 million, up from £44 million in 2018. These losses have mounted as the company has prioritized growth instead of profitability. In June last year, the company raised £575 million from investors to fund its grocery e-commerce business.
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Ocado share price chart
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Ocado Group business is not doing well, as I wrote here. In March, the company said that its revenue for 13 weeks to February 26 came in at £584 million. While this was a modest improvement from the £565 million it made in the same period last year, it represented only marginal growth.
Investors are usually open to invest in unprofitable companies as long as they have growth. For Ocado, unfortunately, the company is seeing slow growth and huge losses.
This explains why the Ocado share price has plunged in the past few months. The stock was trading at 383p, the lowest point since October last year. In all, the shares have crashed by more than 86% from the highest level during the pandemic.
Sadly, there is a likelihood that the stock will continue falling in the near term if it gets kicked off from FTSE 100. History shows that companies that are kicked off the index underperform for a while. Some of them include Royal Mail and ITV. Technically speaking, the shares will likely continue falling as bears target the next key support at 350p.