Ocado is the most shorted stock as hedge funds line up £225m bet

Shortsellers are turning against Ocado after the online grocer posted an eye-watering £501 million loss.

More than 6 percent of the company’s stock is now on loan — the highest level in nearly five years — to hedge funds, which will make money if the stock price falls.

This puts it at the top of the Financial Conduct Authority’s list of the ‘most short-circuited’ stocks in London and indicates that the boost the group received from the pandemic is really over.

Shares of Ocado soared as shoppers started ordering their weekly groceries online during the lockdown.

But the reopening of physical stores, workers returning to the office and a cost-of-living crisis leading ordinary Brits to turn to discount supermarkets have left Ocado behind.

Shares are down nearly a third since this time a year ago, when just 0.52 percent of stocks went short. Now nine groups are targeting Ocado, including BlackRock, in a £225 million bet.

Seven companies have increased their positions since late February, when the FTSE 100 group posted a huge loss for the previous financial year. Ocado also said it had to entice customers by agreeing prices with Tesco on more than 10,000 products – a policy it had abandoned two years earlier. It will update the market again next week on Q1 trading in its 50-50 joint venture with Marks & Spencer, exposing whether Ocado, which controls just 2 percent of the UK supermarket market, is keeping pace with rivals.

Current short positions are still well below the peak of 2016, when more than 21 percent of Ocado’s stock was on loan to hedge funds.

In that year, many groups targeting the company underestimated the progress it was making with automation technology in its “solutions” business, where it designs and makes state-of-the-art robotic warehouses.

Independent retail analyst Richard Hyman said: ‘If you look back before the pandemic, Ocado was often massively shorted – this is a return to form. I think the point is that the market doesn’t have the confidence in Ocado’s business model that the leadership team and founders have.”

While the supermarket branch still makes up the bulk of the group’s income, Ocado continues to invest money in the development of this high-tech branch. It has signed lucrative contracts with other retail giants such as France’s Casino, Kroger in the US and Coles in Australia.

However, analysts are skeptical about the speed at which this company is growing.

Richard Hunter, head of markets at Interactive Investor, said, “It’s a game of two halves with Ocado. The whole thing is based on the other half of the company, which we don’t hear about next week. Ocado has become something of a ‘jam tomorrow’ stock and there is an evaporation of patience in the market.’

Ocado declined to comment.