Ocado (OCDO) share price forecast: where next after pandemic?

As the UK economy was hit by the global pandemic, Ocado, a British online supermarket that carries out home deliveries from its warehouses, emerged on the winners’ side. 

Its business model was perfectly suited to serve people’s needs during lockdowns, which was reflected in its stellar stock performance in 2020. Yet as vaccine rollout advances in the UK and restrictions ease, can Ocado stock sustain its pandemic-driven growth?

Ocado stock analysis: where is the stock now?

Ocado stock sky-rocketed 169% between March 2020 – the very start of the pandemic – and September the same year, reaching a record high of £29.14 ($40.19) on 30 September 2020.

Since then, the stock reached a peak of £28.86 on 27 January 2021, yet struggled to repeat those record highs, slumping 9.66% year to date. In comparison, its benchmark index, FTSE 100, pleased investors with a 10.94% year-to-date return, suggesting Ocado is underperforming the wider market.

Ocado share price prediction: analysts’ price targets

The consensus price target for the stock is £24.78, according to the data from MarketBeat, which suggests Ocado Group has a potential upside of 23.1% from its current price of £20.13. In the last few months, however, some brokerages, such as Barclays and Berenberg Bank, have downgraded their Ocado Group stock price forecast by cutting price targets.

The company has received a consensus rating of ‘Hold’ from industry analysts, with an average rating score of 2.36 based on six buy ratings, three hold ratings and two sell ratings.

Note that analysts’ predictions are often wrong. Your decision on whether to invest in Ocado stock should depend on your attitude to risk, your research and expertise in this market, the spread of your investment portfolio, and how comfortable you feel about losing money.

Ocado price targets; Source: MarketBeat

Are Ocado shares worth buying?

Despite recent stock underperformance, the company’s market share continues to grow in the UK. Ocado Retail says it can reach more than 74% of British households, shipping more than 330,000 orders per week. In 2021, the food retailer has 1.8% of the UK grocery market share, up from 1.4% a year ago, according to Kantar.

Ocado grocery market share; Source: Kantar

Its half-year report also suggests the company maintains strong retail performance even as COVID-19 restrictions ease. The group revenue grew 21.4% to £1.3bn for the 26 weeks ending 30 May, with retail increasing to £1.2bn – up 19.8%. There was also strong new customer and order growth.

Among the recent Ocado shares news, in July the company announced the signing of an agreement with Auchan Retail to develop Alcampo’s online business in Spain using the Ocado Smart Platform (OSP). Auchan Retail is one of the world’s largest and best-known grocery retailers, with 180,000 employees, a €32bn ($38bn) revenue, and operations in 13 countries.  

Tim Steiner, chief executive of Ocado Group, said it was “increasingly clear” that the landscape for grocery worldwide has changed, for good.  “Over the last eighteen months, we have shown that the Ocado model works even in the most challenging and fluid of environments,” he said.

The company is benefitting from grocery shopping on the internet becoming an increasingly popular alternative to visiting supermarkets, according to a report by Statista. It found that the number of individuals purchasing food or groceries online in the UK doubled in the 10 years to 2019. Back in 2009, just 15% bought items in this way, with the number spiking to 30% by 2019. 

Statista also found that the average value of weekly online sales soared in the second and third quarters of 2020 as the UK coped with COVID-19 lockdowns and restrictions. In fact, the second quarter saw weekly sales – from specialised food stores – peak at £364.5m ($502.7m) in the UK, with many people looking to do their shopping from home.

Ocado stock: risks and challenges ahead 

Yet can UK retail food and grocery growth continue growing at the same pace as the country emerges from the pandemic and hospitality reopens? According to the latest report by the Institute of Grocery Distribution (IGD), a sharp slowdown is expected in the short term. IGD predicts that the unprecedented 8.5% growth in 2020 will slow to 1.7% in 2021 and then to 0.9% in 2022, as shoppers economise and the eating-out industry reclaims sales.

This sharp decline will be followed by a period of modest recovery, according to the report, that will see the UK retail food and grocery market grow by 8.1% to £229.1bn over 2021–2026. It will be fuelled by rising employment levels, growing consumer confidence, economic recovery, and the new channels and opportunities created by COVID-19 disruption, such as quick commerce.

Ocado: what are the analysts saying?

Mike Owens, a sales trader at Saxo Markets, pointed out that most food retailers are now seeking delivery solutions that require lower investment – and this may mean partnerships with food delivery platforms, such as Deliveroo.

According to Ioannis Pontikis, an equity analyst at Morningstar, Ocado Retail continues to be the driver for the group, with first-half sales of £1.2bn and £104m of EBITDA. In a broker note, he said the figures implied high-single-digit sales growth in the second quarter, reflecting an expected slowdown as restrictions ease.

Another explanation for the unchanged guidance, suggests Pontikis, could be management trying to be more conservative in an uncertain post-pandemic environment.

According to Russ Mould, investment director at AJ Bell, the real attraction of Ocado is its transition to a solutions business as it licenses the Ocado Smart Platform technology. 

Mould points out that Ocado has already sold half of the grocery delivery business to M&S and that part of the business is seeing an uplift in basket size, thanks to this relationship.  

“The roll-out of customer fulfilment centres in France (Casino) and Canada (Sobeys) are on track and the first shipments from them will boost revenues,” he added. 

On the flip side, Mould points out that Ocado bears the initial costs of rolling out those customer fulfilment centres and isn’t expected to make a profit until 2024. Plus, the growing competition from other providers as the market becomes more saturated could become the next challenge for Ocado. 

How and where to trade Ocado shares in 2021?

One way to trade OCDO shares is with contracts for difference (CFDs) on Capital.com. CFD trading allows you to speculate on the movements of the share price without having to own the underlying stock.

CFDs enable you to try to profit from both positive and negative price fluctuations. If you expect the share price to rise, you can open a long position. If you think it will fall, you can go short.

Another difference with CFD trading is that you can use leverage to open significantly larger positions with a smaller amount of initial capital. You should be aware, however, that while leverage can maximise gains, it can also increase the size of your losses if the share price moves against your position.

Make sure you understand how CFDs work before you start. And never invest money you cannot afford to lose. Learn more about CFDs with our comprehensive guide. You can also create an account on Capital.com to stay on top of the latest Ocado share price news, analysis and forecasts to spot trading opportunities.

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