The Ocado Group PLC (LON:OCDO) (OCDO.L) share price has experienced a sharp decline in recent months. It has dropped by over 20% in the last three months as investors have become increasingly risk averse.
Given that the online-focused retailer is expected to remain loss-making in the current financial year, I’m not surprised that its shares have underperformed the wider index. I view the stock as being relatively risky, since it has thus far been unable to deliver a consistent profit.
Investors may therefore price in a larger margin of safety during periods of higher volatility where the outlook for the world and UK economies seems to be relatively uncertain. As a result, I believe that there could be continued uncertainty ahead for the company’s shares relative to their sector peers.
In the long run, though, I’m optimistic about the prospects for the Ocado share price. I think it has a strong position within an industry which is experiencing significant change. Consumers are increasingly demanding online and mobile shopping experiences which are catering to their needs for increased flexibility. This omnichannel experience means having digital capabilities, as well as the supply chain to cope with consumers who expect to be able to interact with retailers in person and online.
In this area, Ocado appears to have a sound position in my view. It has the technology to improve the omnichannel capabilities of major retailers – as evidenced by the various agreements it has signed in the course of 2018. Further agreements could be ahead in my view, and they could help to catalyse its financial prospects in the long run.
Although a lack of profitability may eventually cause investor sentiment to weaken as investors switch their focus to the bottom line, I believe that the stock could deliver a recovery over the medium term.