Deciding when to sell a stock is as tricky as working out the right timeto buy one. However, I dont think the decisionis so difficult with these two companies. If I held either of them, I would dump them today
E-tailer Ocado Group (LSE: OCDO) calls itself the worlds largest dedicated online grocery with almost 600,000 customers. It hasambitious plans to cash in on the booming market for Britons to do their weekly shop online, which is set to make up 9% of the 179bn grocery market by 2021, up from 6% today.
Its rapid share price growth reflects this opportunity, with the stock soaring206% over the past five years. This figure is rather flattering, as it masks three years of decline dating from 2013, but the recovery is under way, with the stock up 25% in the last six months. Some have been excited by talk of amooted tie-up with Marks & Spencer, although this is far from settled at the moment.
A bit pricey
Ocadohas certainly been motoring, boosted by existing supplier relationships with Waitrose and Morrisons, with sales up 13.6% last year to 1.267bn and profit before tax and exceptional items up 21.8% to 14.5m. Although debt widened from 127m to164.9m, the balance sheet remains strong.
The company is no disaster but trading at a whopping 157 times earnings and forecast to hit 342 times you would hope that its growth prospects would be stronger. Worryingly, earnings per share (EPS) are forecast to drop 48% in the year to 30 November2017, although they may rebound34% the year after. With consumer confidence weak, the economy slowing, and food inflation still relatively high, this stock is way too expensive for me.
Itnow seems a long time sinceMorrisons (LSE: MRW) suffered what oncelooked like a terminal meltdown. The stock has been booming lately, its share price up 45% over two years, and 25% over the past 12months. Iwould never have guessed.
I certainly didnt expect such a dramatic reboundasGerman budget chainsAldi and Lidl continue to make inroads, customer wages continue to stagnate, and sentiment continues to decline. However, management has overhauled the business successfully, driving down costs and using keen pricing to reducemarket share losses.
Sales in the 12 weeks ending 21 May 2017 rose 1.9%, beating both Tesco at 1.8% and Sainsburys at 1.7%, according to latest figures from Kantar Worldpanel. However, Aldi and Lidls sales growth was almost 20%, thats 10 times as high, lifting their joint market share to a record 12%. Morrison saw its market share fall two percentage points to 10.5 points. Hardly disastrous, but the direction of travel is still wrong.
I swept the supermarkets out of my portfolio several years ago and I still see little reason to return to the fray. Perhaps I am being hardon Morrisons, with itsEPS forecast to rise an impressive 18% in the year to 31 January2018, followed by another 6% after that. The dividend is slowly being restored, with a current yield of 2.2% covered twice. However, trading at 22.5 times earnings, this remainsa tough playin a tough sector.
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