Image source: Ocado Group plc
The Ocado Group (LSE:OCDO) share price has risen 48% since the start of August. Of all the stocks on the FTSE 250, its performance has only been bettered by Oxford Nanopore Technologies.
But this is only part of the story. The group’s market-cap has doubled since the middle of July. So what’s going on?
Short memories
The group has two principal revenue streams. First, it has a 50% share in an online grocery delivery business that it operates with Marks & Spencer. Second, it licenses the same technology that it uses to satisfy its joint venture orders to other supermarket chains.
However, it wasn’t that long ago that Ocado reported some disappointing news. In North America, it announced the closure of five automated warehouses — otherwise known as customer fulfilment centres (CFCs) — and the cancellation of another one that was scheduled to open this year.
The group’s partners said they would use their network of local grocery stores to satisfy orders.
But judging by the group’s recent share price performance, this has been forgotten by investors. Instead, they appear enthused by news that six CFCs are expected to go live within the next two to three years. In addition, existing warehouses are anticipated to be utilised more. An additional 20 modules (a measure of capacity) are forecast to come onstream over the next two years.
Furthermore, in May, Ocado unveiled a partnership to “develop Asda’s online business across the UK… including providing the webshop, in-store fulfilment solution and software to support last mile planning and route efficiency”.
JP Morgan‘s particularly enthusiastic. It has a price 12-month price target of 460p for Ocado’s shares.
Déjà vu?
When unveiling its half-year FY26 results (26 weeks ended 31 May) the group declared: “As we continue to focus on delivering growth and efficiency, we will achieve positive cash flow in the second half of the year and be full-year cash flow positive in FY27”.
About time, you might be thinking, for a group founded in April 2000.
For example, in 2010, the group reported: “A landmark year for Ocado… reaching EBIT [earnings before interest and tax] profitability… for the second half of the financial year and EBT [earnings before tax] profitability in the last quarter…”.
Fifteen years later, for the 52 weeks ended 30 November 2025, its operating loss (a proxy for EBIT) was £271.2m and its pre-tax loss was £392.1m. The group’s still a long way from being in the black.
Final thoughts
I think Ocado’s slow path to profitability illustrates that the traditional grocery store has been more resilient that many expected. As well as catering for those looking for a physical shopping experience, supermarkets are using them to process home deliveries as well as click and collect orders.
I acknowledge that its joint venture with Marks & Spencer is doing well. After all, it’s the fastest-growing retailer in the UK. I also believe that Ocado’s warehouse technology is impressive. However, I think there are better opportunities to consider elsewhere.
The group’s taken a long time to get to this point and, it has to be said, investors have been let down before. That’s why those in the market for a growth share might prefer to take a closer look at the stock discussed in the free wealth report below.
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James Beard does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
