The Ocado (LSE: OCDO) share price gained 7% early today (16 January), on the back of a Q4 trading update.
EBITDA should be positive again for the full year. And that comes from a 7% rise in retail revenue.
The shares are still way down from their peaks of 2020 and 2021. But does this mean we could be looking at a fair valuation now?
Record Christmas
It was a record Christmas period for the firm, with its highest ever sales volumes.
With that return to positive EBITDA for 2023, the update speaks of “our journey towards a high mid-single digit EBITDA margin in the midterm“.
The board also said revenue growth in 2024 should be “be in the mid-high single digits“.
The full results should be with us on 29 February. But for now, I think Ocado shareholders will take heart from this.
Buy for 2024?
For those of us who might think of buying, things look a bit trickier. Ocado is still not in profit. The EBITDA performance is a good thing, for sure. But broker forecasts still show losses before tax until at least 2025.
For me, that casts a bit of a shadow on this latest update.
If I want to buy a food retail stock, I’ll go for Tesco. It’s profitable, has a fair price-to-earnings (P/E) ratio, and pays dividends of around 4%.
Technology growth
The long-term allure of Ocado comes from its warehouse technology. And it’s doing well with that. In November, the firm announced a deal to provide its tech to McKesson Canada. At the time, Ocado told us it should be “cash and EBITDA positive in FY25 when installation is complete“.
A foothold in a new country like this could be a big step.
But if that’s what Ocado is all about, why should a bit of good retail news give the share price such a boost?
Cash flowing
Well, it should help keep some cash coming in, and maybe help keep the company going until it can reach profit.
After all, for the first half of 2023, we saw a loss before tax of £290m, with net cash outflow of £288m.
And the bulk of revenue still came from retail. It might be some time yet before the firm’s technology starts to lead its income streams.
Bearish outlook?
So combining all of this, does it mean I’m a bear on the Ocado share price for 2024? Well, no.
What analysts say should be treated with great caution, but they can reflect sentiment quite well. And, right now, there’s a strong ‘buy’ consensus out there. And if that goes on, I think it could be a good year for Ocado.
I also think there’s a high chance the firm’s technology will bring in the profit, some day.
I just don’t know how to put a value on it right now, so I’m out. But I think long-term growth investors might look back on this time as a turning point.
The post As revenue growth boosts the Ocado share price, here’s what you need to know appeared first on The Motley Fool UK.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Ocado Group Plc and Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
