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Should I buy this FTSE 100 stock after its 66% rise in November?

Girl buying groceries in the supermarket with her father.
Girl buying groceries in the supermarket with her father.

The Footsie is having a fine November so far, up nearly 4% already. And over a 30-day period, it’s actually 6.3% higher. However, there’s one FTSE 100 stock that’s having an even better time of it lately, flying up a staggering 66% in just two weeks.

Am I too late to buy the stock?

More than an online grocer

Ocado (LSE: OCDO) originated in 2000 when Tim Steiner quit his job as a bond trader at Goldman Sachs and co-founded L.M. Solutions. This rather dull-sounding business was rebranded two years later to become ‘Ocado’, which is definitely more suitable for an online grocer.

However, more recently, the firm likes to call itself a “technology-led, global, software and robotics platform business, with a strong retail heritage“. Indeed, Tim Steiner has said he wants Ocado to become the ‘Tesla’ of grocery e-commerce technology.

He said: “Why is Tesla so valuable? Because it has built an end-to-end car. It is a good parallel to our industry. Our [Ocado] engineers have built the whole thing”.

The end-to-end idea he’s talking about is the Ocado Smart Platform, launched in 2015. It is a software and hardware offering that helps other businesses operate an online grocery business. It involves building robotic warehouses that incorporate AI, automation, big data, and lots of other high-tech stuff.

Each warehouse is built around a 3D grid structure. Groceries are stored in crates and moved around by thousands of robot pickers managed by a central control system.

Big name deals

Some of the key clients to have signed up for the platform in recent years include Morrisons, Casino Group in France, and Kroger in the US. More recently, it struck a deal to build robotic warehouses with Lotte Group, a South Korean retailer that operates more than 1,000 stores across the country.

This deal in South Korea will involve Ocado building six robot-powered warehouses by 2028. The UK grocer “expects this deal to create significant long term value to the business”. This is the news that sent Ocado shares soaring 38% in one day a couple of weeks ago.

Will I buy the stock?

The risk I see with the stock is that Ocado is still an unprofitable business, 22 years after it was founded. The company reported a loss of £223m last year. If it continues to post losses like this, then the stock is unlikely to do well.

I’ve long admired Ocado’s innovation, though, especially its state-of-the-art warehouses. I like that the founder is still at the helm, as this usually encourages a long-term ethos.

However, I’m not as optimistic when I consider that the company’s retail sales are expected to fall this year for the first time in its history. Ocado Retail, its joint venture with Marks and Spencer, still only has a 1.8% market share of the UK grocery industry.

This matters because most of its revenue still comes from its retail division. Meanwhile, Aldi has this year managed to break into the list of the UK’s top four supermarkets, ousting Morrisons.

Ocado’s technology is said to be disruptive, yet I see no evidence that it is disrupting the established grocery landscape in the UK. So I won’t be buying this growth stock.

The post Should I buy this FTSE 100 stock after its 66% rise in November? appeared first on The Motley Fool UK.

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Ben McPoland has no position in any of the shares mentioned. 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.

Motley Fool UK 2022