When the stock markets open, my daily routine as an astute investor commences with a diligent search for the FTSE 100’s most significant decliners. Driven by my unwavering pursuit of undervalued assets poised for a turnaround, I carefully target shares that have stumbled just before their fortunes reverse. One company that frequently emerges on my radar is none other than Ocado (LSE: OCDO).
On the 5th of June, this Monday, the closing share price reached an unprecedented low of 343.4p, plunging to its nadir since December 2017. What adds to this concerning development is the fact that earlier that very day, the shares stooped to their 52-week rock-bottom at 342.4p.
The situation has taken a dire turn since 30th September 2020, when the stock soared to an all-time high of 2,914p, only to plummet so drastically that the company’s valuation now languishes below £3 billion.
Remarkably, these recent price slumps nearly led to Ocado’s ousting from the prestigious FTSE 100 index. Through a fortunate twist of fate, the company managed to elude relegation to the FTSE 250 during the latest reshuffling of the index.
To better comprehend the magnitude of this stock’s decline, let’s delve into its performance over multiple timeframes:
One week: -11.1%
One month: -26.5%
Three months: -32.0%
Six months: -46.6%
One year: -61.5%
Two years: -80.6%
Three years: -83.5%
Five years: -60.1%
When examining these figures, it becomes apparent that Ocado has endured prolonged and substantial decreases in its share price. Over the span of three months, the company has witnessed a staggering loss of nearly one-third of its value, approaching a 50% decline over six months, and exceeding a 60% plunge within a single year.
Furthermore, the performance of Ocado shares over the past two, three, and five years has been nothing short of abysmal. It’s worth noting that these calculations exclude cash dividends, as the company has never distributed any to its investors.
Admittedly, I’ve been among the staunchest sceptics of Ocado’s prospects. Even when the shares were soaring to new heights in 2020-21, I consistently declined the opportunity to acquire Ocado at significantly higher prices than those prevailing today. At its pinnacle, the company’s market value surpassed an astonishing £21.9 billion. Presently, it stands at less than one-seventh of that, a truly remarkable decline.
Nevertheless, history has taught me that share prices rarely follow a linear trajectory. Unless a company is inevitably destined for insolvency, it often manages to reverse its fortunes. This begs the question: what catalysts could potentially trigger such a reversal for Ocado?
Since its initial public offering in London back in mid-2010, Ocado has accumulated substantial losses amounting to billions of pounds. Nevertheless, the company’s lucrative partnership agreements with major supermarket chains across the globe certainly possess inherent value. The same can be said for Ocado Retail, the joint venture it established with Marks and Spencer Group, whose shares have experienced a remarkable surge of 51.9% in 2023.
The challenge lies in accurately valuing this stock, as conventional fundamental metrics such as price-to-earnings ratio, earnings yield, and dividend yield simply do not apply due to Ocado’s persistent losses.