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The Ocado share price has crashed 36% in 4 months. Can it recover?

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·3-min read
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It’s been a tough few months for shareholders in online supermarket Ocado Group (LSE: OCDO). The Ocado share price, once a high-flyer, has crashed back to earth like Icarus. Indeed, Ocado’s owners have lost almost £8bn of wealth in four months.

The Ocado share price’s relentless rise

Here’s how the Ocado share price has performed over the medium term:

2Y

+56.4%

3Y

+108.9%

5Y

+592.6%

The Ocado share price is up across all three multi-year periods. Over five years, £1,000 invested into OCDO would have become £6,926. This ranks the stock at #1 in the FTSE 100 index over a half-decade. It also ranks at #7 over three years and #16 over two years. Anyone investing in Ocado shares before 2020 picked a big, big winner. However, after a strong start to 2021, the shares have fallen steeply, raising concerns that the stock’s best days may be behind it.

OCDO crashes in 2021

Here is the Ocado share price’s performance over five shorter timescales, ranging from one week to one year:

1W

-6.5%

1M

-14.2%

3M

-12.3%

6M

-15.9%

1Y

-15.9%

As you can see, the Ocado share price has fallen over all five periods, losing almost a sixth (15.9%) of its value over six months and one year. So what’s gone wrong?

Actually, 2021 started brilliantly for Ocado. After ending 2020 at 2,287p, the Ocado share price initially soared this calendar year. By 27 January, it had surged by almost a quarter (26.1%) to hit 2,883p. This took the stock to within 12 pence of its all-time closing high of 2,895p on 29 September 2020. So far, so good.

However, with the arrival of February, the Ocado share price began to slide. As I write, it stands at 1,848p, down more than £10 from its late-January peak. This means that OCDO stock has crashed a whopping 35.9% (more than a third) in just over four months. This has slashed the group’s market value from £21.7bn to £13.9bn — a loss of £7.8bn. Ouch.

What next for this growth stock?

At its current level, the Ocado share price hovers just 4.5p above its 52-week low of 1,843.5p, hit a year ago on 2 June 2020. Right now, I don’t own stock in this company. But with the shares having crashed lately, perhaps now might be a good time to add this growth stock to my family portfolio?

I’m not so sure. One problem I have with Ocado is it is an ‘all promise and no profit’ company. Importantly, the group has made significant losses in every one of its 21 years of existence. But growth companies are often ‘jam tomorrow’ stocks, right? So what might convince me to buy at current price levels?

First, I’d hope to see Ocado continue its rapid sales growth. In the 13 weeks to end-February, the group’s sales soared by almost two-fifths (39.7%) year on year to £599m. However, the average number of weekly orders rose only 2.5% over the same period. Second, I’d like to see the company sign more deals to sell its proprietary e-commerce technology to overseas supermarket chains. Third, I’d be encouraged to see Ocado partner with a leading grocer in some major, untapped European market (say, Germany or Spain). Finally, I’d like to see its UK retail arm start making hefty pre-tax profits. In short, until more good news emerges, I will steer clear of the Ocado share price for now.

The post The Ocado share price has crashed 36% in 4 months. Can it recover? appeared first on The Motley Fool UK.

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Cliffdarcy 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 2021

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