Prediction: analysts say the Ocado share price could climb 37% in the next year! Are they mad?

The Ocado (LSE: OCDO) share price gives me nightmares but I shouldn’t complain. I’m only sitting on a 40% paper loss, and others have had it worse.

Shares in the online grocery retailer and logistics expert are down 86% over five years and 35% over 12 months. Long-term investors have taken a real beating. Many will have given up.

The FTSE 250 technology group develops robotic-picking and delivery tools for online retailers around the world and co-owns the British grocery delivery service Ocado with Marks & Spencer.

A former FTSE 100 stock

During its glory growth days the idea was born that this was the UK equivalent to those magnificent US tech titans. It wasn’t. While the retail delivery arm is holding up, the tech side has struggled to make progress.

The success of its customer state-of-the-art fulfilment centres (CFCs) depends on attracting global grocery chains, and while Ocado has struck an impressive list of deals, they haven’t been growing fast enough to support the huge investment in tech.

All it takes is a dismissive comment by one of its bigger customers for investor confidence to come tumbling down. The shares plunged on 12 September after the new boss of US grocery chain Kroger said the group was taking “a hard look” at its automated-fulfilment-centre network. We’ve heard nothing since, but it’s ominous.

Potential recovery stock

It’s a shame, because up to then, 2025 had shown promise. Half-year results (17 July) showed reported revenues up 13.2% to £674m, with its Technology Solutions division up 14.9% and its Logistics arm up 12.1%.

Underlying cash flow was negative at £108m, but that was an improvement from £201m the year before, with talk of turning cash flow positive by full-year 2026.

On 1 August, analysts at J.P. Morgan raised their target price for Ocado to 437p, citing a de-risked pipeline of eight new CFC rollouts in 2025-27 and cost discipline. Worldpanel grocery data showed sales at Ocado’s retail arm surged 13.6% in the four weeks to 5 October, well above the sector average of 4.1%.

Brokers are optimistic

I’m astonished to see the 10 analysts offering one-year share price forecasts produce a one-year share-price target of 317p. If correct, that’s a jump of more than 36% from today.

I’m sceptical, though. Either they’ve all gone collectively mad, or one or two older forecasts sorely need updating. There’s definitely a wide range of estimates here, from 170p to 421p.

Yet, it could happen. Over the past 18 months, I’ve noticed that whenever Ocado publishes results, the share price has leapt as the news was better than expected. The gains often retreated, but they did hold firm after the half-year results. That was before the Kroger shock, though.

I’ve been tempted to sell, but having taken such a big loss, Ocado is now a small part of my Self-Invested Personal Pension, so I’m simply going to roll with it. But I wouldn’t suggest new investors consider Ocado today. I think it’s just too much of a gamble. Just because a stock has fallen 92%, doesn’t mean it can’t fall further.

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• Trading close to an 8-year low, does Ocado’s share price look an unmissable bargain to me now?
• 3 shares I’m firmly avoiding in today’s stock market

Harvey Jones has positions in Ocado Group Plc. The Motley Fool UK has no position in any of the shares mentioned. 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.

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