Ocado (LSE: OCDO) shares have more than doubled in the last month, making this the best-performing stock on the FTSE 100 lately.

Shares in the grocery tech specialist have increased an incredible 112.39% over the last month, which would have turned a £5,000 investment into an impressive £10,691. I’d be celebrating if I’d bought Ocado shares a month ago. Sadly, my crystal ball was broken that week. The big question is should I buy them today?

Time to buy?

The truth is that I haven’t considered buying Ocado for several years. I missed out on the stock’s golden age, when the shares spiked tenfold from 282p to 2,895p in the three years to September 2020.

I’ve always been wary of jumping on a stock after it has rocketed. The big risk is that I end up buying at the top of the market, just before the crash.

Ocado shares did crash, badly. By 13 October this year they’d given up most of their gains, falling to just 435.80p. So the recent share price jump should be seen in that context. Loyal investors are still well down.

Ocado used to be seen as a supermarket but is now treated as a tech stock, as it looks to sell its automated grocery warehouse technology worldwide. Investors bought it for growth tomorrow, rather than dividends today.

That worked in the era of endless fiscal and monetary stimulus, but that’s now over. Higher inflation and interest rates have hammered growth stocks, by eroding the value of their future earnings. Investors are no longer in the mood to take risks.

Ocado rebounded after announcing that it had secured a deal to provide its online grocery fulfilment solutions to South Korean retailer Lotte Shopping. In another boost, its US partner, grocery chain Kroger, agreed to buy rival Albertsons in a $24.6bn deal, expanding Ocado’s market.

This FTSE 100 stock is going global

A string of global supermarkets now use the Ocado Smart Platform, including Sobeys in Canada, Sweden’s ICA, Groupe Casino in France, Spain’s Alcampo, Japan’s AEON and Coles in Australia. In the UK, it also has tie-ups with Morrisons and Marks & Spencer.

The big problem is that Ocado isn’t making a profit yet, while having to pour large sums into tech development.

At the same time, Ocado Retail, its joint venture with M&S, is suffering as inflation rises while customers struggle. First-half revenues fell 8% to £1.1bn. And the group is a grocery minnow, making up just 1.8% of the total market.

So management is fighting to make a profit on two fronts and succeeding with neither amid challenging economic circumstances. While revenues climbed from £1.454bn in 2017 to £2.498bn last year, pre-tax losses widened from £8.3m to £176.9m over the period.

Today, Ocado shares have fallen a thumping 12.6%, after The Times warned of the impact of rising living costs, inflation and high capital expenditure. It also pointed out that the stock that has “an enterprise value of 82 times forecast earnings before tax and other charges”. So hardly a bargain then.

That pretty much sums up the conclusions I came to on my own. I won’t be buying Ocado shares today. The risks are just too great.

The post Ocado shares have turned £5k into £10k in a month. Should I buy them now? appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Can anything save the Ocado share price?

Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has recommended Ocado Group. 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.

Tesco (LSE: TSCO) and Ocado Group (LSE: OCDO) are two FTSE 100 supermarket stocks that have experienced different fortunes over the past couple of years. While the Tesco share price went into freefall in early 2021 during the coronavirus pandemic, the Ocado share price soared in tandem with rising consumer demand for online grocery shopping. However, things have changed recently. On a 52-week basis, the Tesco share price is up by 19% compared to a -45% drawdown for Ocado. 

Let’s examine which stock I believe offers better value at today’s prices.  

Tesco share price: a value proposition 

Tesco is the UK’s largest supermarket chain. It also runs operations in central Europe and Asia in addition to a retail banking division. With consistent demand for its groceries and a traditional bricks-and-mortar business approach, for me, Tesco stock is a defensive investment prospect. The company’s market cap is over £28.3bn and Tesco has historically offered shareholders reliable dividends and earnings growth.  

The Tesco share price stands at around 273p, slightly towards the upper end of its five-year trading range from a low of 210p in 2017 to a high of 337p in 2018. Tesco’s price-to-earnings ratio sits just above four, making it one of the cheapest FTSE 100 shares. Moreover, the stock’s current dividend yield of 3.28% is pretty close to that of the FTSE 100 index as a whole, at 3.56%.

As inflation rises, the Tesco share price could come under pressure. Rising food costs and supply chain disruptions could act as bearish headwinds. However, Britain’s largest supermarket looks better placed to cope with these threats than many direct competitors, such as Sainsbury’s and Marks & Spencer, due to strong customer loyalty.

Over 20m Brits own a Tesco Clubcard. Although Tesco operates in an intensely competitive market, the discounts Clubcard holders benefit from should mean the Tesco share price will resume its upward trajectory over the coming months in my view, despite the inflationary environment.

Ocado share price: a growth stock

In contrast to Tesco, Ocado is a more speculative stock for me. Ocado specialises in online grocery shopping, but it also resembles a tech stock in some ways. For instance, the company uses AI in its Ocado Smart Platform to offer efficiency improvements in its partners’ grocery e-commerce operations.

The Ocado share price typically experiences greater volatility than the Tesco share price. Furthermore, Ocado currently trades at a negative P/E ratio, does not distribute dividends, and has never turned a profit. This concerns me as Ocado has been trading for over two decades. 

Bulls can argue that Ocado is one of the most innovative companies in a sector dominated by more traditional business models, with its focus on software and warehouse robotics. If this really is the future of retail, Ocado shareholders should stand to benefit.

Nonetheless, Ocado posted a pre-tax loss of £177m for 2021. As consumers revert to their pre-pandemic in-store shopping habits, I’m struggling to be optimistic for Ocado’s share price.  

Which FTSE 100 stock is the better buy for me?

Right now, I’m looking to invest in quality stocks and de-risk my portfolio away from more speculative plays. Accordingly, for me, Tesco constitutes a good value stock to invest in for 2022. I view Tesco as a better buy for me than Ocado at present. 

The post Ocado vs Tesco share price: which FTSE 100 stock is the better buy? appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Here’s what a surging Tesco share price has done to £10,000 invested 5 years ago
• Can anything save the Ocado share price?
• Are Tesco shares losing their momentum?
• Tesco’s share price drops 2% on Q1 trading miss. What’s gone wrong?

Charlie Carman does not own shares in any of the companies mentioned. The Motley Fool UK has recommended Ocado Group, Sainsbury (J), and Tesco. 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.

The outbreak of the pandemic saw a major rise in the Ocado (LSE: OCDO) share price. However, since hitting an all-time high of 2,914p in February, it has fallen and is currently around 35% lower. Back in March, my fellow Fool Manika Premsingh explained why she was buying Ocado. So does this FTSE 100 stock’s share price still have the potential to rise as we seem to be coming out of the pandemic? Let’s take a look.

Ocado opportunities

The first positive is that the pandemic has changed consumer behaviour. At its height, many people switched to online grocery shopping. By August last year, more than three-quarters of consumers ordered at least some of their household shopping from supermarket websites. And I suspect many will continue to shop online, which provides opportunities for the Ocado share price to rise.

This view is reinforced through the firm’s latest financial results. The half-year results for 2021 showed 21.4% growth in revenue to £1.3bn, highlighting the continued strong performance of the business. It also found itself with what it called ‘’healthy liquidity’’, with a cash balance of £1.7bn. This provides stability, possibly giving investors confidence about the future. However, it’s worth noting that pre-tax losses were around £24m. Since its creation, it has rarely made a profit, which does lead me to question whether Ocado is currently overpriced. 

One key point in its favour compared to other grocers that operate online is its customer fulfilment centres.  These allowed Ocado to outperform rivals during the pandemic. Rivals could not always cope with the high demand, but Ocado’s automated systems streamlined the preparation of deliveries. Innovations like this make me optimistic for the future of the business.

Ocado share price risks

Of course, despite the potential I see, I have to consider the risks too. One major potential risk is a lawsuit the firm’s currently involved in. Norwegian robotics company AutoStore has filed complaints in the UK and US claiming Ocado’s automated warehouse systems infringe its patents. A successful lawsuit would block the import, manufacture, sale, and use of these systems. Sorting out the legal situation will inevitably be a long process, costing the firm money along the way. I believe this could be a reason behind the fall in the Ocado share price and I’m wary that the longer the lawsuit goes on, the more it may continue to fall.

To add to this, the grocery market is becoming more competitive, which could pose problems. Supermarket chains like Tesco boosted home delivery in the pandemic, while Amazon has also ventured into grocery with Amazon Fresh. This could have a massive impact on future revenues as these operations potentially poach the firm’s customers, directly impacting the Ocado share price.

Should I buy Ocado?

I like Ocado, and don’t believe that the sole reason for the rise in share price over the past few years is due to the pandemic. It’s an innovative business model with strengthening financial results. So why is the Ocado share price falling? I pin it down to the lawsuit and that means I won’t be buying yet. I may be missing out on a great opportunity, but I intend to keep Ocado on my watchlist until the outcome of the lawsuit is clearer.

The post The Ocado share price has fallen: should I buy now? appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Can anything save the Ocado share price?

Charlie Keough does not own shares in any of the mentioned companies. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Ocado Group and Tesco and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. 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.

But over the past few weeks, the share price has begun to decline. Why? And is this a potential buying opportunity for my growth portfolio? Let’s take a look.

Why did the Ocado share price fall?

The business published its full-year 2020 results in early February and I think the company is performing quite well. Total revenue increased by 32.7%, primarily due to UK operational growth. And its International Solutions segment looks like it’s taking off with revenue rising from £0.5m to £16.6m.

The firm remains unprofitable, but its losses also declined from £214.5m in 2019 to £44.1m in 2020. So why is the Ocado share price falling?

As I see it, investors are being more cautious due to two factors. The first is the potential introduction of a digital sales tax. The second is the expectation of a slowdown in online sales growth as more of the population gets vaccinated against Covid-19. Personally, I’m not overly concerned about either of these threats. And here’s why.

Ocado is building a robot army

As previously stated, the recent pullback in the Ocado share price is likely linked to its online supermarket segment. While that does currently generate the most significant portion of revenue, it’s no longer the primary focus of the business. But the stock pivoted in 2019, transforming into a technology-led software and robotics solutions company. So what does that mean?

Basically, it built a robot army to help automate the majority of the process of producing, packaging and delivering groceries to retailers worldwide. Today, over 10 supermarket chains — including Morrisons, Coles, and Kroger — have signed up to use its robot-driven platform.

What I find particularly promising is the prospect of a network effect forming. As more companies join the platform, its resources grow. This subsequently enables faster innovation to improve efficiency, which in turn attracts more companies to sign up. 

There are many challenges ahead

While the robot-driven platform is vastly different from the home delivery of food, it still serves the same market – groceries. This means that the regulatory requirements for producing and packaging food must be maintained. This is a task made even more complicated by its international operations as the rules vary from country to country.

Any delays or disruptions in the supply chain would likely damage Ocado’s reputation as well as the relationships with its platform customers. Even more so if the cause is a regulatory breach.

Another significant risk that may lead to operational disruption is the workforce itself. The majority of Ocado’s employees are EU nationals (for now). This adds additional complications as the UK is no longer a member of the EU. Thus most workers will have to acquire visas. While this is only a short-term problem, it could lead to the potential loss of key personnel.

Would I buy Ocado at the current share price?

There are certainly plenty of risks ahead, but the business is trying to redesign supermarkets’ grocery supply chains. If it succeeds, robots could become the new standard way of doing business for all grocery stores. Personally, I think the risks are worth the reward and so Ocado looks like it could be a fine addition to my portfolio.

The post The Ocado share price is around 2,300p. Would I buy now? appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Can anything save the Ocado share price?

Zaven Boyrazian does not own shares in Ocado. 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.