The Ocado share price rose 11% in a day – 3 reasons I think it’s still a great buy

The Ocado share price rose sharply yesterday, following its trading statement. Is it still a good time to buy the stock or is it too pricey now?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

The Ocado (LSE: OCDO) share price has performed superbly well in 2020. But it was an outlier yesterday even by its own high standards. The FTSE 100 online retailer’s price jumped almost 11% from the day before. As I write this Wednesday morning, it’s still rallying. If, as an investor you are now hesitant to buy the stock, it’s understandable. After all, there’s risk to buying a stock at such highs. I think otherwise, though. Allow me to try and convince you otherwise with the following three arguments. 

Cheap UK shares are appealing, are they? 

First, the appeal of cheap UK shares is undeniable. When FTSE 100 companies’ shares are available at low price-to-earnings (P/E) ratios or low absolute prices, they can appear to be a bargain. And it may well be the case. As the stock market crash struck, both share prices and earnings ratios fell across the board. However, many shares’ prices have bounced back sharply since. Others have remained weak. 

In my assessment, share prices of two kinds of stocks have remained weak. One, those that have been hit hard by coronavirus. Think hospitality, travel, and entertainment. Two, those that were weak even before Covid-19 struck. Think banking stocks. On the other hand, companies with both strong prospects and performance, like Ocado, AstraZeneca, and London Stock Exchange Group have seen significant increases in share prices. If a stock market crash happens again, it follows that these are the ones to load up on.

Should you invest £1,000 in Ocado right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Ocado made the list?

See the 6 stocks

Ocado share price rose during the lockdown

Two, it’s true that some part of the company’s performance – its retail revenue grew 52% in the quarter ending 30 August 2020 compared to last year – is a blind stroke of luck. Restrictions on movement, personal precaution, and ease of online ordering led to a surge in online shopping. While this growth spurt may cool off somewhat as things return to normal, Covid-19 may have quickened the speed of the transition to e-commerce as well. Companies have long been adding online stores, and it’s really a foregone conclusion that digital shopping will rise over time. In other words, Ocado exists in an expanding marketplace, which bodes well for it. 

Strong positioning

Third, it’s in a unique and advantageous position as an early starter. It’s the only FTSE 100 online grocery retailer today. Sure, there are other big retailers like Tesco and J Sainsbury, but they are more the brick-and-mortar variety right now. In any case, Ocado works in conjunction with big retailers. In other words, it isn’t just competing with other retailers. Earlier it collaborated with Waitrose and it now has a tie-up with Marks & Spencer. As a long-term investor in the most promising companies of tomorrow, I’d consider Ocado’s shares. Even if the Ocado share price looks steep right now, I reckon that when we look back at it in the next few years, it’s will look like a good time to have bought the stock.  


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh owns shares of AstraZeneca and Ocado Group. The Motley Fool UK has recommended Tesco. 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.

More on Investing Articles

Rolls-Royce's Pearl 10X engine series
Investing Articles

Rolls-Royce shares have reached £10. Too late to buy?

Selling for pennies as recently as 2022, Rolls-Royce shares recently topped a tenner apiece. Our writer assesses whether he's too…

Read more »

UK coloured flags waving above large crowd on a stadium sport match.
Investing Articles

Meet the $2 stock up 366% that UK investors are piling into

UK stock investors have been snapping up this meme stock recently. Incredibly, it has more than quadrupled since June! What's…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Down 49%, is this well-known name the deep-value stock it seems?

Our writer has been tempted to add more B&M shares to his portfolio after a recent tumble. So what's holding…

Read more »

Abstract 3d arrows with rocket
Micro-Cap Shares

After falling 80% from a 52-week high, is this penny share a screaming buy?

This penny share company skyrocketed earlier this year, but the share price has since fallen back. Is it a new…

Read more »

British Pennies on a Pound Note
Investing Articles

This penny stock rose 49% in a year. Here’s why it may still be a terrific bargain

This penny stock has soared by 49% in 12 months -- but still sells for far less than the sum…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

MHA is a UK stock market success story that deserves your attention

MHA listed on the UK’s stock market in April and has performed extremely well. Dr James Fox explains why the…

Read more »

A senior man using hiking poles, on a hike on a coastal path along the coastline of Cornwall.
Investing Articles

£20,000 in savings? Here’s how a Stocks and Shares ISA could generate £621 a month of passive income – tax-free!

Christopher Ruane explains how a Stocks and Shares ISA could potentially generate sizeable long-term passive income streams from proven businesses.

Read more »

A rear view of a female in a bright yellow coat walking along the historic street known as The Shambles in York, UK which is a popular tourist destination in this Yorkshire city.
Investing Articles

Up 269% in 5 years, could the Marks and Spencer share price go even higher?

Christopher Ruane explains some of the reasons the Marks and Spencer share price has boomed in recent years -- and…

Read more »