Investors in Ocado Group PLC (LSE:OCDO) will eagerly be looking ahead to Thursday’s first-quarter trading update, hoping the company has been able to chip away at some of the losses incurred last year.
The food delivery turned robotics company announced new, innovative tech over the last 12 months.
More recently, it confirmed a deal with supermarket giant Auchan to build a warehouse in Poland.
But the share price has tanked over the last 12 months, down 43% from 2114p last March.
So why does the stock continue to fall for a company that is signing agreements and releasing new robotics?
What happened in the last results?
In its full-year results released last month, the company saw profit fall from £73.1mln to £61mln, which largely reflected heavy capital expenditure investment which increased by more than four times to £680.4mln.
Statutory pre-tax losses widened to £176.9mln from £52.3mln with increased investment in the Solutions business, with net debt standing at £359.8mln.
Why have the shares tanked in the last year?
Shares in the company have been on a decline since the highs of last February, where they were trading at 2808p.
According to analysts, there are a couple of reasons for this.
Shore Capital’s Clive Black believes the company is in a constant state of requiring investment while failing to turn a profit. A ‘jam tomorrow’ situation.
“Ocado is in constant investment phase as it is a fixed asset-heavy model. To date, the fees from the investments made do not cover the outgoings by some margin.”
He also adds an increasingly competitive market has taken its toll on Ocado’s stock, with local delivery start-ups, such as Getir popping up.
“Putting the wider stock market rotation out of growth/risk into value/defensiveness to one side, we see this evolving economic landscape as the key factor behind the structural de-rating of Ocado's stock.”
Russ Mould, an investment director at AJ Bell, takes a slightly different view.
He believes “Ocado’s lofty valuation priced in a huge amount of good news and not much, if any, bad, so if anything unexpected happened there wasn’t a lot of downside protection.”
A lack of news on the new deal front didn’t help that, although today’s announcement may alleviate some concerns.
Mould also adds that rising inflation and the likelihood of rising interest rates tends to be bad news for “secular growth stocks” such as Ocado for two main reasons.
Firstly, a rise in interest rates, and implied discounted cash flow model, usually results in long-term growth stocks, like Ocado, going the other way.
He also adds that the value for money is in cyclical growth businesses, that can be bought for cheap, rather than premium secular growth businesses during rampant times of inflation.
What can we expect from its update?
A doubling down on its current business model is what investors can expect to see in Thursday’s update, at least according to Dan Lane, a senior analyst at Freetrade.
He adds it’s likely that chief executive Tim Steiner still believes that consumer shopping habits have changed for good, and while “we might ebb and flow back to physical stores,” Ocado is banking on the trend towards online shopping seen during the pandemic to be here for good.
That means that investors “should expect much more attention on the supermarket partnership deals and Ocado adding value by going back to existing partners to offer next-gen robots too,” Lane said.
“If this is truly where Steiner sees the opportunity he needs to double down on it now and make sure the firm can actually fulfil demand where huge players need the capacity to serve thousands of customers”
The company will need to react quickly though, as a failure to convince shoppers to carry on clicking from a screen could “feel like an almighty opportunity missed,” with competition rising.