Why is the Ocado share price up 5% today?

This has not been a positive news weekend in the UK. For many of us, our Christmases have been ruined by the last minute changes to our festive plans. The concerns surrounding the new strain of Covid-19, however, may have far more dramatic consequences. Further lockdowns seem all but certain, […]

This has not been a positive news weekend in the UK. For many of us, our Christmases have been ruined by the last minute changes to our festive plans. The concerns surrounding the new strain of Covid-19, however, may have far more dramatic consequences. Further lockdowns seem all but certain, which is why the Ocado (LSE: OCDO) share price is up 5% today.

Online shopping to benefit

It goes without saying that lockdowns of any kind help bolster online shopping. Grocery stores in particular have fared well during previous lockdowns – Ocado first among these. Between March and July, for example, Ocado saw its share price almost double.

Ocado has always been in prime place to benefit from increased online shopping. According to the company, it has classically seen a large number of online shoppers migrate to it from other high street stores. It seems people first shop online with the supermarkets they know, and then move to Ocado.

Though the new Tier-4 level has come into place in the South East of England, it seems almost inevitable that it will be rolled out nation-wide at some point after Christmas mixing increases infection rates. All the current commentary is suggesting that with this new strain, variations of lockdown could last until spring.

Is it enough for the Ocado share price long term?

The Ocado share price has already been having a good year because of Covid-19, and I think this latest news probably will filter through to more sales for the company in 2021.

Of course, the trend towards online shopping has been going on for some years. In many ways, Covid-19 has acted more as a catalyst to accelerate the move. The longer Covid-19 and lockdowns continue, the faster this change looks to take place.

Online shopping is not Ocado’s only revenue stream. In fact, it makes much of its money from its automated picking, packing, and delivery systems. This market may be under a little more question. Ocado sells and leases the technologies to other supermarkets, but it seems unlikely that there will be an influx of spending from many companies in these uncertain times.

Is there an investment case?

The one concern I have had for Ocado as an investment is that the share price has been high. Given this latest news though, this may no longer be the case.

The Ocado share price is still almost double what it was at the start of the year, but it is far from its recent high. In September, the Ocado shares reached a peak of almost £29 a share. Its current price of 2,316p may be cheap enough after all.

In these uncertain times I am still cautious with shares that are so dependent on such volatile news. However, given the government’s announcement this weekend, the Ocado share price is certainly looking a little more appealing to me.

A Top Share with Enormous Growth Potential

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But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

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Karl has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

The post Why is the Ocado share price up 5% today? appeared first on The Motley Fool UK.

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