Does the Ocado share price make it too cheap to ignore?
On 22 June, the Ocado Group (LSE: OCDO) share price spiked up 30%. It’s the kind of stock that can do that from time to time but, so far, the rise seems to have stuck.
It’s all down to rumors of a takeover bid for the company. And it’s not just anyone we’re talking about here. No, the claim came from The Times, no less. And the alleged suitor is none other than Amazon.com.
The Ocado share price did wobble a bit when an opposing rumor surfaced, that Amazon had denied any interest.
No comments
But the only confirmed comment we’ve had from the US online retail giant is that it had no comment.
Ocado has said nothing either, not even to the big news agencies. Reuters has apparently enquired, but nothing was forthcoming.
All we’ve heard from Ocado is news of the appointment of a new independent non-executive director. It’s Rachel Osborne, who will take up the role on September 1.
She was previously CEO of Ted Baker, and has held executive positions at Debenhams, Domino’s Pizza, and John Lewis. That’s a great track record. But the news sheds no light on the big story of the day.
Are the shares cheap?
Is Ocado stock a bargain? Well, there’s talk of an offer of 800p per share. With Ocado trading at around the 540p level, at the time of writing, that could mean an instant 48% profit. Cheap? It would be a steal. But only if the bid emerges, as claimed.
Someone with a bit of money to invest seems to like what they’ve seen in this saga. Lingotto Investment Management, a firm owned by Exor (the holding company of Italy’s Agnelli industrial dynasty), has raised its Ocado stake to 5%.
Generally, I turn my nose up at bid rumors. But this was started by The Times. And it has Goldman Sachs and J.P. Morgan apparently lined up to manage it. Neither of those has commented so far.
It’s about valuations
For me, a decision like this would have to be based on how I value the stock. Do I think Ocado is worth buying in itself for the long term, on today’s share price?
At Ocado, there’s no profit from which to work out the usual price-to-earnings (P/E) ratio. In fact, Ocado lost half a million pounds before tax in 2022. The losses look set to reduce, but I see no profit on the horizon yet.
Sales have been growing steadily. And there’s a price-to-sales ratio (PSR) of about 1.6 times, based on 2023 forecasts.
peer supermarkets
For a supermarket that looks high. Tesco is on a forward PSR of less than 0.3. But as a developer of online shopping technology, the Ocado PSR might be good.
I’ll keep away for one main reason. I gave up taking the risk of buying on takeover hopes years ago. And it’s saved me quite a bit of cash.
But it would be nice to see Ocado shareholders pocket some rewards for sticking with it.
The post Does the Ocado share price make it too cheap to ignore? appeared first on The Motley Fool UK.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon.com, Ocado Group Plc and Domino’s Pizza Group Plc. The 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.
Motley Fool UK 2023