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Is now the time to buy cheap Ocado shares?

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Ocado (LSE: OCDO) shares have been one of the worst performers in 2022. The stock has slumped nearly 50%, compared to just a 5% fall seen by the FTSE 100.

The shares have come under pressure in recent times. However, does this fall open an opportunity for me to add a bargain to my portfolio?

A rocky road for Ocado

The stock’s price has been on some journey over the past few years. With the Covid-19 pandemic taking full grip of our lives, the online grocer saw a boom in business as consumers were forced to take their shopping habits online. Its retail business saw a 35% jump in revenue for 2021. And during this booming period, its share price hit an all-time high of nearly 3,000p.

However, 2022 has told a different tale. Inflationary pressures have seen consumers batten down the hatches as rising rates have eaten away at incomes. And with grocery prices consequently rising, it’s clear to see Ocado has taken a hit. The firm has placed itself among the upper echelons of grocery retailers, having recently partnered with Marks & Spencer (and previously Waitrose). So as the popularity of budget retailers like Aldi and Lidl continues on an upward trend, the outlook for Ocado has turned sour.

Where next?

So, where does the business go from here?

Well, it recently raised £578m from investors as it looks to continue the rollout of its e-commerce technology. The group has taken large strides to expand its capabilities, including the creation of over 50 customer fulfilment centres across the world.

The firm charges third-party retailers to use its technology, so an increase in centres should come with a boost in Ocado’s revenues.

However, investors don’t seem to be convinced. The stock dropped 5% as the company issued new shares at a 9% discount. Ocado has failed to turn a profit despite heavy investments. And with this latest round of cash raising, it looks like market spectators fail to see a way out for the firm.

It has also expanded the territories it operates in recently, notably in France and Poland. This expansion opens new markets, which of course, could be a benefit for Ocado. However, with a lack of agreements in these regions, the outlook remains dire.

Ocado released a trading update back in May where it downgraded its full-year outlook. The business stated that the average basket value had fallen 9% year on year. And that sales had dropped 8% so far for the quarter. As such, the firm lowered its expected sales growth from the previous 10% to low single digits. Its half-year results are due this month, so it will be interesting to see how it has fared.

Why I’m not buying

The pandemic was key in highlighting that Ocado can succeed. And with the amount it’s pumped into its expansion, it could see this pay off over the long term. However, I’m not convinced. I struggle to see a way back for Ocado. And with a gruelling period ahead of them as costs continue to rise, I think the stock will lag. I won’t be buying Ocado shares any time soon.

The post Is now the time to buy cheap Ocado shares? appeared first on The Motley Fool UK.

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Charlie Keough 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.