Stock market

1 popular FTSE 100 share I wouldn’t touch with 2 barge pools!

Image source: Ocado Group plc

gave FTSE 100 Home to many of the UK’s favorite stocks. And with some of them seeing significant price declines in recent months, many stocks are currently out of favor with investors. This can be a great opportunity for bargain hunters. Even so, there’s one I wouldn’t want to own.

Ocado Group (LSE:OCDO) describes itself as “A global, technology business redefining e-commerce, fulfillment and logistics, online grocery and beyond

Personally, I think it’s a retailer. This is because the business accounted for 85% of grocery sales during the year ended December 3, 2023 (FY23).

And I think that difference is important.

Ocado’s own description encourages investors to view it as an innovative pioneer at the forefront of cutting-edge technology. Higher income multiples can then be justified.

And this strategy seems to be working. The company currently has a market cap of £3bn, despite only recording three annual profits since its formation. Also, its stock market value is double its book (accounting) value.

An encouraging assessment

This positivity extends to the company’s 2023 annual report. On page two it says “Financial developmentIn fact, the word ‘growth’ appears 109 times in the document – and its adjusted EBITDA growth (earnings before interest, taxes, depreciation, and amortization).

In fact, as the chart below shows, for FY23, EBITDA was positive after being negative during the previous fiscal year.

Source: Company Annual Reports

A different story

But Ocado has spent heavily on its infrastructure and has taken on debt to pay for much of that spending.

That means it has a lot of depreciation, amortization and interest in its accounts — the company has recorded an after-tax loss for the past five years. Putting this financial measure alongside Adjusted EBITDA paints a different picture (see below).

Source: Company Annual Reports

The consensus among brokers is that losses will moderate over the next three financial years. But after-tax profits seem years away.

Not surprisingly, the poor results have affected the company’s share price. It has fallen 70% since May 2019. In July 2023, shares were changing hands for around £10. They went high on speculation. Amazon The takeover bid was about to start. This never materialized and the shares are now trading around £3.60.

However, due to the poor financial performance of the company, I would not like to invest.

But I accept that one person’s trash can be another’s treasure.

And Ocado is still one of the UK’s most popular stocks. I think shareholders have bought into the idea that the company will ultimately make more money licensing its technology to others than selling groceries. The company believes the global market for its innovative solutions is worth $130bn.

Also, the company’s latest commercial update for Ocado Retail – its joint venture with Marks and Spencer – Contains some encouraging signs.

For the 13 weeks to March 3, 2024, it saw comparable increases in average number of orders (8.4%), basket size (2.1%), active users (6.4%), and average selling price (2.2%). saw period a year ago.

Even so, I think Ocado is far from being a global technology company. And, more importantly, years away from being profitable. So, the recent drop in the company’s share price will not tempt me to invest.


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