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December is a good time of year to review business performance during the calendar year. Not only that, but it is the moment when many analysts begin to publish their forecasts for 2025. Here is a FTSE 250 stock that has performed poorly in 2024, but I think could have a much better year ahead.
Problems this year
I'm talking about Ocado Group (LSE:OCDO). The stock has fallen 47% over the past year, making it one of the worst performers on the FTSE 250 over this period.
One of the reasons for this was the continued loss-making nature of its operations this year. H1 2024 results showed a pre-tax loss of £154m. Admittedly, this is a smaller loss than in the same period in 2023 (£290 million). But ultimately it's still a loss. Since reported earnings per share have been negative for several years, I think some investors decided to throw in the towel and look for opportunities elsewhere.
Another factor behind the disappointing performance was the headache at the beginning of the year with a dispute with Brands and Spencer. The 50:50 deal the pair signed for the online food joint venture began in 2019. In early 2024, Ocado threatened legal action, saying £190m of a final payment had not been paid. I feel the sad thing here is not so much the details, but that it could deter other companies from wanting to work with Ocado on a similar joint venture.
Continuous growth
Despite these issues, I think the stock could be poised to rebound next year. One reason this might happen is because the business is reaching scale. In the case of growth stocks, losses are usually recorded in the first few days. However, as the company grows it can benefit from economies of scale.
For Ocado, the first half report showed that all three main divisions increased their revenue. This ranged from 5.6% for Logistics to 21.8% for technology Solutions. The CEO also noted that “We support thirteen of the world's leading grocers to grow their online business with our technology”.
I feel it's only a matter of time before strong demand and revenue growth translate into bottom line profits. The group's pre-tax loss of £153.9m was almost £140m lower than in the first half of 2023. Therefore, it is definitely not out of the question that the loss could be reduced by another £140m, which which in turn would leave the company close to the break-even point.
<h2 class="wp-block-heading" id="h-an-ai-slant-for-2025″>An ai tilt by 2025
Let's keep in mind that we forget about Ocado's use of artificial intelligence (ai). It widely uses technology in its logistics centers and in supply chain management. I believe that next year investors will start to look beyond the well-known ai stocks and focus on those that have been ignored until now, such as Ocado.
Of course, this year's problems could continue in 2025 and, in my opinion, this is the main risk. However, I feel like the stock is starting to look cheap, so I'm seriously thinking about adding it to my portfolio before the end of the year.
