FTSE 250 grocery and tech specialist Ocado Group (LSE: OCDO) has been the bane of my portfolio since I bought it last year hoping I was getting a bargain. As of last night, I was down 38% on my trade. But today brought a welcome surprise. Ocado shares jumped 12% in early trading after posting bumper Christmas results.
Long-term investors will still be suffering from indigestion though. The Ocado share price is down 58% over one year and 79% over five.
This morning we learned that Ocado Retail, its joint venture with Marks and Spencer Group, ended the financial year on a high.
Can Ocado shares grow from here?
Q4 retail revenues surged 17.5% year-on-year to £715.8m, building on the 15.5% growth seen in Q3. Average weekly orders increased 16.9% to 476,000, hitting a milestone of 500,000 in late November. Active customers rose 12.1% to 1.12m, with modest gains in average basket value and order volumes.
Demand’s robust as wages rise continue to faster than inflation. So what’s fuelling this growth? CEO Hannah Gibson attributes the success to Ocado Retail’s “unbeatable choice, unrivalled service and reassuringly good value.“
There’s an early whiff of spring in the air, with Ocado Retail expecting to sustain its market-leading sales growth and improve efficiency during 2025. It’s targeting a high mid-single-digit adjusted EBITDA margin in the medium term. That’s a critical goal given its long-term struggles with profitability. Scaling operations while enhancing margins could finally address one of the company’s key weaknesses.
I’m not getting too excited though. Last September, Ocado Retail upgraded revenue guidance after a 15.5% Q3 revenue jump, prompting a share price spike that quickly fizzled. Similar patterns emerged over the summer, as a handful of new CFC openings for overseas partners failed to sustain investor enthusiasm.
Ocado still faces major hurdles. While its robot warehouse technology is groundbreaking, international partners have been slow to adopt it. That’s delayed the global roll-out needed to justify the massive investment. Until the group achieves consistent profitability, the share price is likely to remain volatile.
Another bumpy year in store
Rising interest rates add another hurdle. Higher rates drive up financing costs for growth-focused companies and diminish the value of potential future earnings. The fiercely competitive grocery sector and rising operational costs threaten to squeeze margins further.
Today’s results, buoyed by record-breaking Christmas trading, have handed me a glimmer of much-needed hope. Yet the road ahead is challenging. Ocado must expand its customer base, improve efficiency and fully leverage its innovative technology to achieve sustained success. None of that will be easy, especially given today’s economic uncertainties.
So will Ocado finally make me rich? While its trajectory shows promise, the path’s far from certain. The company’s blend of technological innovation and retail expertise is great, in theory. The reality has been tough. External pressures like inflation and interest rate concerns remain daunting obstacles.
I’ve made my bet on Ocado and plan to stick with it, but I expect today’s spike to fade just like the last few did. Its day could come, but only when inflation and interest rates are finally heading in the right direction.
The post This FTSE 250 stock’s jumped 12% after today’s results! Will it finally make me rich? appeared first on The Motley Fool UK.
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Harvey Jones has positions in Ocado Group Plc. The Motley Fool UK has no position in any of the shares mentioned. 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.
