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Ocado (LSE: OCDO) shares have to go down as my worst buy. Not just because they’ve performed so badly, but because my thinking was wrong from the start.
When I bought the grocery delivery and robot tech warehouse specialist, the stock had already fallen 85% in five years. I convinced myself that made it a bargain. In reality, I’d grabbed the ultimate FTSE 100 falling knife, which is now nestled in the FTSE 250 and making my Self-Invested Personal Pension look messy.
There was a moment of hope when the shares spiked 50% in July, trimming my paper loss to around 10%. The trigger was a swing to a £611.8m first-half statutory profit on 17 July, against a £153.3m loss the year before.
Much of that came from a one-off accounting gain linked to Ocado Retail, but revenues did climb 13.2% to £674m. I even dared to think the shares might turn the corner. My the optimism didn’t last.
FTSE falling knife
Then came the blow. On 12 September the stock fell almost 20% in a day after US partner Kroger said it was reviewing its business model, including a “site-by-site” analysis of its automated warehouses.
This spooked investors. Ocado’s customer fulfilment centres don’t come cheap. It spent £162.6m last year on six sites, including two for Kroger.
The prospect of closures in the US is grim, because the company already struggles to convince retailers that giant, robot-driven warehouses are the future.
Ocado has 25 live sites with eight more in the pipeline, but persuading new customers to sign up is getting tougher. Despite the clever technology, it remains loss-making and doesn’t expect to generate positive cash flow until 2026.
For long-suffering shareholders like me, patience is the only option. Selling today would lock in a heavy loss. But there’s no way I’d suggest investors consider buying Ocado today. The risks are just way too high.
Goodwin is growing at speed
The contrast with FTSE 250-listed engineering group Goodwin (LSE: GDWN) couldn’t be starker. This family-run business has been in operation since 1883 and continues to deliver. Over 20 years, total returns have topped 4,632% compared with 282% from the wider FTSE 250.
I considered buying the stock in the run-up to its recent full-year results on 30 July, but held my fire. So that was my second big mistake, because they blew investors away. The shares soared after Goodwin posted a 47% rise in full-year pre-tax profit to £35.5m, with a fat dividend hike to boot. Today, they’re really expensive, with a price-to-earnings ratio of 33.7.
I’d love to own the stock for the long term, but I’d prefer to wait for a cheaper entry point. Investors might consider buying today with a long-term view, but today it looks too hot for my liking.
By contrast, Ocado is cold as ice. Yet this feels like the worst time to sell. The worst-case Kroger scenario looks priced in. Maybe it won’t happen. So I’ll hold and hope.
But if I were starting from scratch, I know which company I’d consider buying. Goodwin makes real money and shares it with investors. Ocado still has it all to prove. I’ve learned a hard lesson here.
