Ocado

Thursday, 22nd July 2010 09:47 - by Robbie Burns

When I heard Ocado was going to float on the market, I was quite interested. After all, I use Ocado quite a lot myself and we get regular deliveries. Ocado is very, very good! The drivers are always on time and pleasant, the food is top notch, and it is an excellent service. So, I thought I would buy the shares. That is until I looked into it. When thinking of buying a share, I try to take emotion out of it. So, just because a company provides a good service doesn't mean their shares are a ‘Buy’. A bit like the Dragons in the Den, you've got to look at the figures and then figure out what any forward return might be. Sadly, with Ocado, I couldn't see one for a long time. No profit, a risky business and a valuation of near a billion pounds. Even when the shares eventually came on the market priced at 180p, they looked too expensive. Removing the name Ocado and looking at the business objectively, I wouldn't be a buyer till it hits about 100p. I just can't see how it's worth much more than £400m; and even that's pushing it a bit. It'll be heading into the FTSE250, so investment funds will be buying in and the price is likely to stay above the 150p area at least in the short-term. However, the future doesn't look great and I can imagine picking these up a lot cheaper late this year or early next. So while Ocado delivers brilliantly to me, I'm in no hurry to get a share certificate delivered to me. It's always better to buy companies with great growth prospects already making good profits and recent float SuperGroup fits the bill. It's already making profits of over £25 million and its recent statement reveals more growth is to come. It's an online fashion business used by the likes of Posh & Becks and this is its time. I've already kicked myself hard for not taking part in the original float at 500p. However, I did get some in the mid 650s and early 800s. I think 1200-1300 is achievable this year. However, given this is fashion - and fashion changes - I'd take my profits at around that sort of price level. Looks like it'll be the best float of the year; with Ocado perhaps the worst. So, next time you look at a market float and try to decide whether to take part, take a good look at the figures. Be wary of any company coming onto the market that isn't making a profit.