Don’t write off Ocado in very long term – but reversal also points to one of the stock market’s terrible habits
Imagine that on the first day of 2020 you had magically been granted insight into the size and commercial impact of the coming Covid pandemic. From this shortlist of two food-related companies in the FTSE 100 index, would you have chosen to make a “forever” investment in Compass Group, a contract caterer set to be clobbered as offices and schools closed their canteens? Or would you have opted for Ocado, an online retailer with world-leading technology that was about to enjoy a whoosh of demand from locked-down shoppers?
For the first 12 months of this race, the winner seemed blindingly obvious. Compass’s share price halved in anticipation of a plunge in annual operating profits that turned out to be as severe as feared – 82%. The group had to raise £2bn of fresh equity to strengthen its finances.
