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Some things are fairly easy to value, but others are much more difficult. Ocado (LSE:OCDO) share price sits firmly in the latter category.
Ocado entered the market through its initial public offering (IPO) in 2010.
I assume that those who bought shares at that time were hoping for some sustainable profits by now, but they must have been disappointed, as analysts are forecasting further annual losses at least until 2026.
Boom and boom
And just look at what happened to the share price – it soared and approached £30 in 2020 and 2021. But at the time, investors were acting as if Covid had wiped out bricks and mortar stores for good and Ocado would soon take over the entire grocery retail business.
Of course, none of that happened and the price has fallen again. At the time of writing, it is at 439p and the stock is down. FTSE 250 Index.
Whats Next?
But with all this gloom and despair, what could happen to Ocado's share price by the end of 2024?
City analysts are fairly divided on the issue, even a bit pessimistic overall.
But you know, I wonder if it might be time to be a little contradictory.
I think it's fair to say that the pandemic and its aftermath helped throw Ocado's plans into disarray. But now that we're past it, we should have a clearer view of how the online grocery business is likely to develop in the long term.
Customer base
With the first half results out on 16 July, CEO Tim Steiner noted that Ocado is already backing “Thirteen of the world's leading supermarkets will grow their online business with our technology“.
And speaking of getting back into the swing of things in the long term, he added: “The global channel shift to online has already resumed and Ocado is uniquely positioned to seize the opportunity..”
The financial result may not be great, but I would say it is better than it looks. We are still seeing losses, but they are narrowing. In the first half of this year, we posted a pre-tax loss of £154m, almost half the £290m recorded a year earlier.
I expect the Ocado share price to remain volatile for a long time, so I would say there is a significant risk of losses in the short term.
Forecast profits?
Brokers expect Ocado's revenues to rise steadily in the coming years. EBITDA is positive and looks set to grow well, while net losses will continue to decline.
However, there is one thing I don't like and I fear that it could throw everything off track. It looks like interest payments are going to increase in the coming years. We have to keep an eye on that.
I think the first time we see a profit on the forecasters' horizon, the Ocado share price could soar. If we see a profit on the forecasters' horizon, that is.
Still, with investors seemingly once again keen to take a bit of growth risk, I think Ocado could end 2024 with an edge.
