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Ocado (Q3 statement 18 September)
Ocado continues to be a firm of two halves – the UK retail division may see more growth, but it will require further extensive investment, with the attendant costs, and even a big push into automation is unlikely to reduce this by a significant margin.
Instead, we see a further expansion of the solutions business, which retains the capability to drive long-term increases in revenue. Margins remain tight and net debt has continued to rise, so some of the optimism surrounding the shares may diminish.
The spike in the shares has driven the price-earnings (P/E) ratio to an astronomically high level of 2366 times forward earnings, from around 170 times at the end of last year. It also trades at 9.7 times forward book value.
Ocado shares have fallen back from their summer highs, and while they are below the 100-day simple moving average (SMA) at £9.50, momentum is now oversold. A defence of £9.15, as we saw in June, might suggest a move back towards the recent highs at £11.40.