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Stock Watch

Is the Ocado share price drop-off set to continue?

Ocado share price: a line of Ocado vans

It had been a fairly decent 12 months for the Ocado share price, pushing the value of the company to within touching distance of Tesco, the UK’s number one food retailer. Despite this, the Ocado share price has dropped since the turn of the year, with news of a potential economic reopening threatening the ubiquity that delivery services had experienced during lockdowns.

With the delivery specialist set to reveal its Q1 results on Thursday, what will the latest numbers mean for the Ocado share price?

Ocado share price to be boosted by investment in tech?

Last month the company delivered full year EBITDA of £73.1m, as well as growing full-year revenues to £2.33bn. Fees from its international partners also boomed, jumping 52% to £123.9m.

The company has continued to invest in its technology, paying a combined £287m to acquire robotics companies Kindred Systems and Haddington Dynamics in December. These types of deal and capex are part of the company’s strategy to streamline the picking functions in its automated fulfilment centres and improve efficiencies across the business.

Of the acquisition, Ocado CEO Tim Steiner said “we are massively accelerating our investment and our progress in the robotics space.” He continued: “This will mean our clients can roll out facilities with better economics.” These clients, based in several markets around the world and all signed up to use Ocado’s robotic tech, include the Morrisons, Coles and Kroger chains.

Economic reopening set to slow Ocado’s gains

For all the strong performance and tech acceleration, the Ocado share price has lost momentum in 2021.

Since the full-year results just over a month ago, the Ocado share price has lost ground, no doubt over concern that Ocado might lose out as the UK economy starts to reopen, after its gains during the pandemic. However cautious the government’s roadmap may be, as Britain’s vaccination programme continues to roll out and reopening looms, it’s likely that the country will be less reliant on home deliveries in the coming months.

While these concerns for Ocado’s share price are no doubt justified, it doesn’t change the fact that the business is likely to see further growth whatever happens. Ocado continues to make acquisitions and sign new deals, while reaping the benefit from deals such as the £750m Marks and Spencer partnership. Ocado is also set to open new, smaller automated warehouses around the company in order to increase its fulfilment and delivery capabilities. A seventh site, the first to open in the UK since 2018, will be sited in Bicester, with discussions open over sites eight, nine and 10. A move into Scotland seems a probability, as Ocado currently has no reach north of the border.

The biggest concern for shareholders is the gap currently between its current valuation and its prospects for future revenue growth. This week's Q1 numbers will be an early indication of how well the business is shaping up for the new fiscal year.

Ocado will release its Q1 results on Thursday 18 March. How will the Ocado share price react?

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