Further weakness as Ocado Group (LON:OCDO) drops 4.7% this week, taking three-year losses to 63%
Ocado Group plc (LON:OCDO) shareholders will doubtless be very grateful to see the share price up 86% in the last quarter. But that doesn't change the fact that the returns over the last three years have been disappointing. Tragically, the share price declined 63% in that time. Some might say the recent bounce is to be expected after such a bad drop. While many would remain nervous, there could be further gains if the business can put its best foot forward.
If the past week is anything to go by, investor sentiment for Ocado Group isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
View our latest analysis for Ocado Group
Ocado Group isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over three years, Ocado Group grew revenue at 6.0% per year. That's not a very high growth rate considering it doesn't make profits. This uninspiring revenue growth has no doubt helped send the share price lower; it dropped 18% during the period. When a stock falls hard like this, some investors like to add the company to a watchlist (in case the business recovers, longer term). Keep in mind it isn't unusual for good businesses to have a tough time or a couple of uninspiring years.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
Ocado Group shareholders are down 8.8% for the year, but the market itself is up 1.1%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Ocado Group (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.
Ocado Group is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
