Short sellers turn to Ocado after online grocer posts eye-watering £501m loss
Short sellers are turning to Ocado after the online grocer posted a mouthwatering £501million loss.
More than 6% of the company’s shares are now on loan – the highest level in nearly five years – to hedge funds, which will make money if their share price falls.
That puts it at the top of the Financial Conduct Authority’s list of “best-selling” stocks in London and signals that the boost the group has received from the pandemic is well and truly over.
Ocado shares soared as shoppers turned to ordering their weekly groceries online during lockdown.
But the reopening of brick-and-mortar stores, the return of workers to the office and a cost of living crisis that sees ordinary Britons opting for cut-price supermarkets have put Ocado on their backs.
Upscale: But Ocado says it must now match the price of Tesco items
Shares have fallen nearly a third since that time a year ago, when just 0.52% of its shares were sold short. Now nine groups are targeting Ocado, including BlackRock, in a bet worth £225m.
Seven companies have increased their positions since late February, when the FTSE 100 group posted a huge loss for the previous financial year. Ocado also said it needed to entice shoppers by price matching with Tesco on more than 10,000 products – a policy it had scrapped two years earlier. He will update the market again next week on first-quarter trading in his 50-50 joint venture with Marks & Spencer, revealing whether Ocado, which has just 2% of the UK grocery market, is following rivals.
Current short positions are still well below the peak reached in 2016 – when more than 21% of Ocado shares were on loan to hedge funds.
That year, many groups targeting the company underestimated the progress it was making with automation technology in its “solutions” business, where it designs and manufactures state-of-the-art robotic warehouses.
Independent retail analyst Richard Hyman said: “If you look back before the pandemic, Ocado was often massively shorted – it’s a return to form.” I think the point is that the market has no faith in the business model of Ocado that the management team and the founders have.
While the grocery branch still generates the vast majority of the group’s revenue, Ocado continues to invest money in the development of this high-tech branch. It has signed lucrative contracts with other retail giants such as Casino in France, Kroger in the United States and Coles in Australia.
However, analysts are skeptical about the speed at which this company is growing.
Richard Hunter, Head of Markets at Interactive Investor, said: “It’s a game of two halves with Ocado. The whole thing hinges on the other half of the deal, which we won’t hear about next week. Ocado has become something of a “jam tomorrow” stock and there has been an evaporation of patience in the market.
Ocado declined to comment.
