Key points:
- Ocado shares jump 7% today based on a new report from Credit Suisse
- The bank is forecasting shares to rise to 1,750p in part due to unveiling new grocery-picking robots
- I think that a small allocation to the shares is a good move, but risks do remain
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The Ocado (LSE:OCDO) share price is up 7% today, making it the best performer in the FTSE 100 index. It’s also a welcome jump higher for existing shareholders. This is given the fact that Ocado shares are down almost 50% over the past year. With a clear driver for this move today, I need to decide if this is a flash in the pan or if this represents the start of a turnaround.
Credit Suisse upgrades rating
The main reason for the jump today came after the investment bank Credit Suisse decided to upgrade its forecast for Ocado shares. Analysts within the bank changed their prediction for the share to ‘outperform’, with a new share price target of 1,750p. Currently, the share price trades at 1,534p, so there’s another 14% upside.
Some might find it surprising that one new statement from a research team in a bank can cause the share price to move so much. Yet Credit Suisse is one of the leading investment banks, with a very well respected research arm. Further, it’s important to note who reads these reports. Before it reaches the public eye, it’s sent around to key clients, including pension funds, hedge funds, and other big players.
Therefore, if Credit Suisse say a stock could do well, there’s a high chance that their clients will buy the shares. So really, the move in Ocado shares today is a ripple effect of the report as it got published and read.
Finding value in Ocado shares
The analysts raised a few points for the change in sentiment. Firstly, the team think that the 50% correction over the past year now accurately prices the risks of the business. This echoes my view that I made a long time ago that the stock was overvalued. The halving of the share price does make it a more appealing (fairly valued) stock for me to consider buying.
Secondly, the team pointed to grocery-picking robots that are going to be introduced later this year in the warehouses. Such robots will provide greater efficiency, providing faster delivery times with less errors.
CEO Tim Steiner said that the robots were “transformational in the market and really drive our innovation forward”. I do think that the robots will help Ocado compete better in the market. One of the reasons why the company has struggled recently is due to new competitors such as Getir and GoPuff being able to deliver quicker. With robots, Ocado should be able to undercut the competition here and take back market share.
On the basis of the above, I am considering buying a small amount of Ocado shares. I would want to leave some money spare to invest more if the share price continues to fall. The risks around tough competition does still mean that this rally might be short-lived, which is why I want to stay nimble.
Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Ocado Group. 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.
