With some FTSE 100 stocks currently falling sharply, the prospect of doubling my money in the stock market seems far-fetched. But like most economic turmoil, this too shall pass. Following the 2008 financial crisis, UK shares exploded upward within a few years, generating immense wealth in the process. And I see no reason why a new bull market won’t emerge once again.
And Ocado (LSE:OCDO) is one stock I believe can deliver triple-digit growth over the long term.
The business
As a quick reminder, Ocado is an online grocery retailer deploying robotics to maximise operational efficiency. With inflation driving up labour costs, having a warehouse automation system has proved advantageous. Unfortunately, inflation has also led to a drop-off in demand.
In the first few months of 2022, the UK grocery market shrank by 5% as consumer spending fell. And this downward shift has already begun affecting Ocado, with average basket sizes taking a hit.
Consequently, with investor confidence waning and a bleak-short term outlook, the share price is enduring quite a tumble, falling by almost 60% in the last 12 months. Yet I believe this has created a unique buying opportunity.
Can this FTSE 100 stock double my money?
Despite everything, the online grocery market continues to expand. In fact, it’s more than doubled since the pandemic began, hitting 13.1% of the UK’s total grocery sales in January. And Ocado appears to be capitalising on this trend, with active customers growing 31%, hitting 835,000 in February.
In May, the group reported a record 400,000 deliveries completed within a week. And with increased capacity now available from its new fulfilment facilities, Ocado’s logistics infrastructure gives it a key advantage over most of its competitors.
My upbeat stance on the company is shared by other leading retailers since many are now licensing Ocado’s robotics solution for their logistics operations. In November 2021, the company had 10 licensed sites generating a total of £777m in sales. That’s around 31% of its revenue stream. And with nine new facilities to open by the end of 2022, this top-line contribution might soon double.
Its international licensing solutions remain loss-making. But in the UK, EBITDA margins sit at a comfortable 10% versus the 6.5% achieved by its retail arm. Assuming management can shift international operations to the same degree of profitability, underlying earnings could be in for quite a substantial upward surge. Even more so given there are 48 additional facilities planned to be built by 2035.
Taking the current average revenue per site and extending it across this future portfolio gives a very rough revenue forecast of £5.2bn with £520.59m in underlying profits at a 10% margin. With this in mind, I’m not surprised to see some analysts forecasting this FTSE 100 stock to climb 268% higher than today’s price!
However, not every analyst is as optimistic. Opening these new facilities doesn’t come cheap, and Ocado’s capital expenditures have been surging in recent years. With debt becoming more expensive, raising money to cover these costs will become more challenging over time. And it’s possible that the cash could run out before Ocado can deliver these explosive profits.
Yet I’m cautiously optimistic. While there’s undoubtedly a high degree of risk, I feel it’s a risk worth taking for my portfolio, given the immense growth potential I see.
