Ocado shares plunge after FTSE 100 demotion
Ocado remains unprofitable and overvalued. Is it time to let go of the online supermarket?


Over the past 15 years, the notion that a company exists to make money for its shareholders has often been cast aside. Many technology companies saw their share prices rocket even as they drowned in red ink. This was partly due to a genuine belief that the losses were necessary for them to grow enough to reach critical scale. However, near-zero interest rates also explain the trend; they meant that investors had little alternative but to be patient. However, with interest rates now back to normal levels, such companies are being battered.
Chief among them is Ocado (LSE: OCDO). This company pioneered the idea of ordering your groceries online and having them delivered to your home. It is so closely associated with online food shopping that it has almost achieved verb status, in the same way that Google is inextricably linked with search engines. Surveys show that 75% of Britons are aware of the brand. But while Google has been able to make billions in profits, Ocado has not succeeded in converting its ubiquity into hard cash.
Ocado's downfall comes as online shopping declines
There are two reasons for this. While online shopping got a big boost during the pandemic, people quickly returned to the shops once restrictions were lifted, which is not surprising given that the vast majority of people in the UK live close to a supermarket. Even today, online shopping only makes up around 13% of food sales in the UK (and a similar figure in the US). Crucially, the supermarkets themselves adapted by launching their own online services, taking advantage of their huge networks. The upshot? Ocado now accounts for barely more than one in 10 online grocery sales.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Worse, Ocado’s online shop is now embroiled in a legal dispute with Marks & Spencer (which owns 50% of Ocado.com) over payments related to Ocado missing contractual targets. While Ocado is attempting to reinvent itself as a technology company that can help other supermarkets develop their own online operations, this strategy is also running into problems.
Canadian supermarket chain Sobeys recently announced it would delay the opening of its Vancouver customer fulfilment centre, which Ocado was supposed to run. The group also still trades at 0.85 times sales, much more than 0.45 times for Marks & Spencer, 0.31 for Tesco and 0.18 for J Sainsbury – yet all of these companies are making a profit. The shares remain overvalued.
At the same time, all technical indicators suggest that the market is souring on Ocado. The stock has lagged the market by 60% over the last six months, and trades below its 50-day and 200-day moving averages. What’s more, the company was demoted from the FTSE 100 index a few weeks ago. I suggest shorting the shares at their current price of 320p at £6 per 1p. Cover your position at 480p, which would give you a total downside of £960.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
-
Inheritance tax reform ‘largely protects family farms’ – what are the alternatives?
Independent analysis of the government’s inheritance tax reforms has found eight out of 10 farming estates will be able to pay their IHT bill without having to sell off parts of the farm
-
UK inflation hits highest level in 18 months
Inflation jumped again in July, hitting 3.8%.
-
What we can learn from Britain’s "Dashing Dozen" stocks
Stocks that consistently outperform the market are clearly doing something right. What can we learn from the UK's top performers and which ones are still buys?
-
The most likely outcome of the AI boom is a big fall
Opinion Like the dotcom boom of the late 1990s, AI is not paying off – despite huge investments being made in the hope of creating AI-based wealth
-
The rise of Robin Zeng: China’s billionaire battery king
Robin Zeng, a pioneer in EV batteries, is vying with Li Ka-shing for the title of Hong Kong’s richest person. He is typical of a new kind of tycoon in China
-
Europe’s forgotten equities offer value, growth and strong cash flows
Opinion Jonathon Regis, co-portfolio manager, Developed Markets UCITS Strategy, Lansdowne Partners, highlights forgotten equities he'd put his money in
-
How retail investors can gain exposure to Lloyd’s of London
It’s hard for retail investors to get in on the action at Lloyd’s of London. Here are some of the ways to gain exposure
-
The flaw in Terry Smith’s strategy at Fundsmith
Opinion Fundsmith has invested in some excellent companies, but it has struggled to decide when to sell, says Max King
-
The goal of business is not profit, but virtue
Opinion Serve your customers well, and the profits will follow, according to a new book. It rarely works the other way around, says Stuart Watkins
-
Picton Property: a deep-value property play
Picton Property has all the qualities of a future takeover target