Ocado won’t deliver for investors: here's how to play it

Sales are surging at online grocer Ocado, but consistent profitability has proved elusive. The share price is heading for a fall, says Matthew Partridge.

Ocado van
Ocado has lost market share this year
(Image credit: © PAUL ELLIS/AFP via Getty Images)

One of the big winners from the restrictions induced by the pandemic has been the online food-delivery firm Ocado Group (LSE: OCDO). Faced with long queues outside supermarkets, people switched to shopping online. As a result, Ocado’s sales surged by 43.7% during the six months to 6 October and at one stage the group’s market value had more than doubled from its level at the start of this year, briefly eclipsing Tesco as the most valuable retailer in the UK. Even today it is up by 75% year-to-date. Despite this, I think it is heading for a fall.

The first problem with Ocado is that it is not very good at actually making money. It last turned a profit in 2016 and is forecast to increase its losses in 2021; analysts suggest that it may be 2024 before it starts generating cash. While part of this is due to spending on overseas expansion, if it can’t make money during conditions that are ideally suited to an online retailer, one has to wonder when it will. By contrast, traditional supermarkets such as J Sainsbury and Wm Morrison have still been able to make money this year, despite the extra costs associated with Covid-19. Tesco’s profits have risen.

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Dr Matthew Partridge
Shares editor, MoneyWeek

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