On Wednesday, CFRA maintained its Hold rating on Ocado Group PLC (LON:OCDO:LN) (OTC: OCDGF) but lowered the price target to £4.00 from £6.00. The revised price target is based on a fiscal year 2024 (November) price-to-sales ratio of 1.0x, a significant discount from the 5-year average of 4.0x. This new target reflects the firm's adjusted expectations for the company's near-term growth prospects.
The earnings per share (EPS) forecast for Ocado has been adjusted to a loss of £0.42 from a loss of £0.30 for FY24 and to a loss of £0.30 from a loss of £0.21 for FY25. The adjustments come as Ocado's current roll-out of its Customer Fulfilment Centre (CFC) is progressing slower than expected and is unlikely to meet the full-year estimate previously set out by analysts.
Ocado's key partner, Kroger (NYSE:KR), has also shifted its strategy, moving away from the initial goal of a home delivery service. This change in direction has led to the closure of three Ocado-powered spoke facilities. Although these closures are relatively minor in the context of the potential CFC order pipeline, they are perceived as a negative indicator of future performance.
Despite these setbacks, Ocado has experienced positive developments within its Retail segment. However, CFRA believes that for the market sentiment to improve, Ocado's Technology Solutions segment needs to demonstrate more significant progress. The firm's analysis suggests that the current pace of Ocado's operations and the recent pivot by its partner Kroger will likely not be well-received by the market.
InvestingPro Insights
InvestingPro data highlights several key metrics for Ocado Group PLC (OTC: OCDGF) that investors should consider. With a market capitalization of $3.58 billion, the company's revenue has grown by 12.25% over the last twelve months as of Q4 2023. However, this growth comes with a caveat; the gross profit margin during the same period was relatively low at 2.45%, indicating potential inefficiencies in cost management. Additionally, the stock's price has experienced a significant downturn, trading near its 52-week low and showing a one-month price total return of -19.79%.
InvestingPro Tips reveal that the stock's RSI suggests it is currently in oversold territory, which may interest traders looking for a potential rebound. On the flip side, analysts do not expect the company to be profitable this year, and the stock has been identified as having weak gross profit margins. For investors looking for a deeper dive into Ocado's financial health and future prospects, there are 11 additional InvestingPro Tips available, which can be accessed with a subscription. To enrich your investment strategy and gain access to these insights, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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