I want nothing to do with this FTSE 100 disaster!

Ocado
Group
(LSE:OCDO)
is
a

FTSE
100
stock
that’s
in
danger
of
being
relegated
from
the
prestigious
index
of
the
UK’s
largest
listed
companies.
That’s
because
its
share
price
is
down
30%
since
April
2023.
And
it’s
85%
lower
than
its
all-time
peak
achieved
in
September
2020.

The
company
now
has
the
second-lowest
market
cap
on
the
Footsie,
beaten
only
by

St
James’s
Place.
But
despite
this
fall,
I
still
think
the
online
grocery
retailer
is
hugely
overvalued.

Some
numbers

To
illustrate
this,
the
table
below
contains
some
key
financial
metrics
for
the
company
extracted
from
its
accounts
for
the
53
weeks
ended
3
December
2023
(FY23).
I’ve
also
included
some
important
valuation
measures.
For
comparison,
I’ve
added
the
same
data
for

Harbour
Energy
(LSE:HBR)
as
disclosed
in
its
2023
accounts.

To
me,
the
latter
looks
in
far
better
financial
shape.
And
yet
Ocado
has
a
stock
market
valuation
of
£3bn.
Incredibly,
this
is
25%
higher
than
Harbour
Energy’s.

I
should
point
out
that
the
oil
and
gas
producer
has
its
own
problems.
In
2022,
the
government
imposed
a
25%
energy
profits
levy
on
the
industry.
A
year
later,
it
was
increased
to
35%.
Combined
with
other
taxes,
this
resulted
in
the
company
having
an
effective
tax
rate
of
95%
in
2023.
Not
surprisingly,
this
has
acted
as
a
drag
on
its
share
price
performance.

But
there
are
many
other
examples
I
could
have
chosen,
all
of
which
–
I
believe
–
demonstrate
that
Ocado’s
shares
are
very
expensive.
And
for
that
reason
alone,
I
wouldn’t
want
to
invest.

Am
I
missing
something?

However,
stock
market
valuations
are
meant
to
be
forward
looking.
They
are
supposed
to
reflect
the
potential
of
a
business
rather
than
its
historical
performance. 

But
in
my
opinion,
Ocado
is
a
long
way
from
being
profitable,
although
its
directors
remain
optimistic
about
its
future
prospects.
 

They
claim
that
its
core
market
is
large
and
growing.
As
the
chart
below
shows,
the
share
of
groceries
purchased
online
is
forecast
to
grow
over
the
next
four
years
in
all
of
its
key
territories.

This
should
help
boost
the
retail
arm
of
its
business.

But
it
will
also
create
further
opportunities
to
license
its
automated
warehouse
technology.
The
company
also
sees
potential
for
letting
other
retailers
use
its
ordering
platform
that
it
claims
is
“battle-tested”
and
protected
by
over
2,600
patents.

According
to
its
website,
letting
third
parties
use
its
software
and
technology
will
further
accelerate
its
“virtuous
cycle
of
growth,
investment
and
innovation”.

All
this
makes
Ocado
sound
like
a
technology
company.
And
I
guess
that’s
the
point.
By
establishing
itself
as
a
savvy
tech
business
it
will
be
able
to
attract
a
higher
valuation
multiple
than
an
old-fashioned
retailer.

But
with
85%
of
its
FY23
revenue
coming
from
its
joint
venture
with

Marks
and
Spencer,
in
my
eyes
it’s
an
online
grocery
shop.

Final
thoughts

The
company
claims
that
it
has
the
“operational
know-how
to
enable
our
partners
and
customers
to
achieve
scalability
and
success”.
Cynics
(like
me)
will
be
wondering
why
Ocado
itself
hasn’t
managed
to
do
this
after
over
two
decades
of
trading.

And
astonishingly,
the
company’s
2022
report
states:
“We
are
just
getting
started
on
our
growth
journey
in
grocery
and
beyond”.

If
I
was
a
shareholder,
I’d
have
run
out
of
patience
long
before
now.