Can Ocado's share price deliver after FTSE 100 exit?

Ocado’s share price hasn’t delivered since its pandemic heyday. Now the online grocer’s stock is likely getting the boot from the FTSE 100. In contrast, M&S has bagged robust earnings, a soaring share price, and the likely reinstatement of its dividend.

Investors have been turning their noses up at the Ocado [OCDO.L] share price since its glory days during the pandemic. Weighing on the stock is food inflation, an easing in demand for food deliveries, and a loss making technology business.

Year-to-date Ocado’s share price has declined 34% and is now trading below M&S’s [MKS.L] share price for the first time in half a decade. In contrast, Ocado Retail co-owner M&S has seen its stock rise over 45% this year as its turnaround strategy starts to deliver the goods.

Ocado’s share price has now slumped more than 78% in the space of two years. Is the stock now a bargain or has it past its sell-by date? And what about the M&S share price?

Ocado set to exit FTSE 100

Ocado is now set to be booted out of the FTSE 100 at the end of May, having been part of the index for the past five years. Inflation woes and a decline in business after the pandemic have weighed on the stock which has seen its market value plummet.

Last year was particularly bruising for Ocado as overall pre-tax losses came in at £501 million. Its business building high tech fulfilment centres for global clients made a £113 million loss, while its food delivery service Ocado Retail delivered a £4 million loss, reversing the previous year’s £150 million profit from this side of the business.

Ocado is set to be replaced by engineer IMI in the FTSE 100’s next quarterly reshuffle, according to FTSE Russell. The changes will be confirmed on 31 May, based on the companies’ closing market prices.

M&S share price finally delivers

Unlike its partner, M&S’s share price is soaring with the stock popping 12% on Wednesday 24 May as the retailer posted an improved set of results across its business. Group sales were up

9.9% year-on-year to £12 billion for the 52 weeks ending 1 April 2023. Profit before tax came in at £475.7 million, up 21.4% year-on-year.

Food sales were up 8.7% year-on-year to £7.2 billion. M&S CEO Stuart Machin said that food “outperformed the market, with customer perception for quality and value the highest in six years.” Clothing and home online sales were up 4.8%, with in store sales up 14.9%.

Machin attributed the strong performance to store rotation and renewal programme, which “delivered strong sales uplifts”. The M&S boss added that a “disciplined approach to capital allocation means [M&S] can invest for growth, while further reducing net debt and maintaining investment grade credit metrics”.

In further good news, M&S promised to reinstate a “modest” dividend in November.

Following the results, analysts at ShareCorp told their clients that M&S’s share price could be at a “very attractive entry point” and that a rating expansion was a “strengthening possibility” in their view.

Can Ocado share price match M&S’s performance?

It’s not all doom and gloom for Ocado with sales in the first three months of this year markedly improved. Revenue for Ocado Retail was up 3.4% year-on-year to £584 million in the first quarter. Ocado’s international solutions business, which builds robotic fulfilment centres, more than doubled its revenue to £148 million.

More quarters like this could reverse the stumbling Ocado share price, potentially winning promotion back into the FTSE 100.

Still, both M&S and Ocado will have to contend with still rising food prices which soared at nearly the fastest rate in 45 years in April with the cost of staples such as milk and bread sharply up. Food inflation was 19.1% in the year to April 2023, according to data from the Office of National Statistics. Much more of this and basket sizes could shrink, with shoppers finding cheaper, less premium alternatives.

Among the analysts, Ocado’s share price has a 12-month median price target of 575p, suggesting a 41.3% upside on Friday’s close. Investors should weigh up the risks involved considering how Ocado’s share price has tanked over the past two years,

M&S’s share price has a 12-month median price target of 180p, which would see a slim 0.3% upside on Friday’s close.