Ocado failing to deliver: Are we all losing patience with this perennial ‘jam tomorrow’ stock?

Ocado broke into the British supermarket scene in 2000. Almost immediately, it became associated with cutting-edge innovation and health in online shopping: its name derives from the avocado, an appropriately ambitious fruit for an upscale grocer.

Subsequently, Ocado, now a member of the FTSE 100, has never been far from the headlines.

Its vans are a familiar sight, but it is also the leading global force in automated e-commerce warehouses. It promises: “We are on a mission to change the way the world shops forever.”

There is admiration for his ambitions, but also dissatisfaction with the size of his losses, which could still total £115 million a year even in 2027.

Interactive Investor’s Richard Hunter calls Ocado the eternal “jam tomorrow” stock. The shares are up 324 percent since going public in 2010, but are down 78 percent since their peak of 2,895 pence in September 2020 — the era of e-commerce stock love.

Is there now a chance that shares will return to this level, allowing investors to sample the equivalent of £7.50 Daylesford organic ginger and rhubarb, available from Ocado? Or will tomorrow always be jam of any sort?

The consensus price for the stock among analysts following Ocado is 841p, up from the current 687p. But Ocado remains one of the most shorted stocks, suggesting some are unimpressed.

Confusing these and other pessimists, the price rose 20 percent this week as relief over the half-year results overwhelmed doubts about the outlook.

Total losses could reach £289 million, but the Technology Solutions division is finally turning a profit.

This operation licenses supermarkets around the world, such as Aeon in Japan and Kroger in the US.

Chris Beauchamp, chief market analyst at IG Group, said the progress at Tech Solutions was a reminder that “the great hope for Ocado stock is that they can license their technology to a broad audience around the world, rather than just be another UK supermarket.” William Woods of Realtor Alliance Bernstein has said that “nothing in the world” can compete with Ocado automation.

In June, shares rose for another reason: rumored takeover interests from two parties: tech giant Amazon and Lingotto, a fund backed by Italy’s Agnelli dynasty and chaired by former chancellor George Osborne.

Clive Black, chief of research at Shore Capital and an Ocado skeptic, calls these reports “spoof bid stories,” pointing to the apparent lack of intervention by the Takeover Panel. Others said speculation started when Ocado faced demotion from the FTSE 100 due to its lower market cap.

Others say Amazon, which owns Whole Foods, would be put off by the cost of the capital expenditure Tech Solutions needs in a time of high interest rates.

Placing a bet on Ocado now is a leap of faith on the rise of Ocado’s CFCs, but Baillie Gifford is one of those confident the clientele will grow.

The fund manager is the second largest investor, with a 12 per cent stake divided between funds including Edinburgh Worldwide and Scottish Mortgage (I’m an investor).

But buying the shares now is also a bet on the retail subsidiary, which still accounts for 86 percent of turnover. The joint venture with Marks & Spencer is on track for profit, as Ocado boss Tim Steiner puts it.

However, M&S boss Stuart Machin is not happy with the division’s performance, as is chairman Archie Norman. Ocado Retail is gaining customers, but M&S ​​may not have to pay the final installment of the deal next summer. The amount owed has already been reduced from £190 million to £78 million.

As a shareholder of M&S I am also unhappy. Despite the 62 percent jump in shares this year, the turnaround is said to be helped by more sparkle from the joint venture.

As a user of the Ocado app since 2009, I found the offer less appealing. Cost-conscious households want sharp prices, but also more expensive delicacies. I wonder if these are presented with enough allure. Also, M&S ranges appear to be less well promoted on the app than predecessor Waitrose.

Due to what Hunter calls “sluggish progress,” analysts are rating the stock as a “hold,” but he adds that it is a “strong hold.” If you want to support a pioneering British tech company, even believers like Woods insist that you have to take a three to five year view.

There’s no guarantee that Ocado will deliver – but wouldn’t it be great if it did?