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From time to time, the Ocado (LSE: OCDO) share price puts on a show. It flickers into life like a leftover New Year’s Eve sparkler and gives long-suffering investors a flash of hope.
It staged quite a performance over the summer, spiking to almost 396p on 8 August after broker JPMorgan Cazenove surprised markets by reiterating its Overweight rating and lifting its price target from 400p to 437p.
A loss-making opportunity
I remember those heady days well. I bought Ocado shares in 2023 after they’d already fallen 85% from their all-time high, thinking they’d dropped enough to be a bargain. I was wrong. Within months I’d lost half my stake, although for a couple of balmy summer days I somehow clawed my way back to level pegging.
Then the fun stopped. The lights went out and I was back to nursing a 50% loss. I shouldn’t complain. Long-term holders of the FTSE 250 stock are down more than 90%.
The shares slumped after key US partner Kroger confirmed it would close three of Ocado’s automated customer fulfilment centres (CFCs) in November. That decision will cut Ocado’s full-year 2026 revenues by around £38m.
Kroger will continue running centres in high volume centres in Ohio, Texas, Georgia, Colorado and Michigan. The original plan was for 20 though.
CEO Tim Steiner has spent billions developing its robotic warehouse technology and depends on licensing it to supermarkets worldwide. Nobody doubts the tech’s splendid. The real question has always been cost and demand.
Ocado shares sank back to 2023 levels before getting some respite on 5 December, when Kroger agreed to pay $350m in compensation. Helpful, but not the same as long-term usage.
Another risk is that artificial intelligence (AI) could offer cheaper, simpler ways to automate grocery deliveries, potentially undercutting Ocado’s expensive systems.
Top FTSE 250 recovery stock?
Now suddenly the sparkles are back. Ocado shares have jumped 20% in the last week, trimming my loss to around 40%. Happy days! What’s going on?
This rebound has nothing to do with robotics. Instead, it’s driven by Ocado’s smaller UK online grocery joint venture with Marks & Spencer. That side of the business is performing better.
Latest Worldpanel data showed Ocado sales surged 15.8% in the 12 weeks to 30 November, well ahead of second-placed Lidl at 10.2% and big gun Tesco at 4.7%. That lifted Ocado’s market share to 2.2%. It’s still a minnow, given Tesco’s 28.3% dominance, but that’s progress nonetheless.
The venture remains loss-making, but it keeps hope alive. With Ocado’s market-cap slipping below £2bn, maybe the shares are worth buying for the grocery venture alone. The problem is the technology arm’s still sucking in huge sums and may never generate a return.
I’m holding my shares. Sentiment’s so bleak that even small positives can trigger big jumps, as we’ve just seen. And who knows, if Ocado enjoys a bumper Christmas, we could see more sparkles in 2026.
I’m grateful for the breather, but I wouldn’t suggest new investors consider Ocado today. It’s still too risky.
This story originally appeared on Motley Fool
