With Ocado (OCDO) shares currently worth around a quarter of their value this time two years ago, investors might be wondering if the stock could finally be worth buying.

While it is tempting to think all the bad news must be in the share price by now, we feel we need to warn potential buyers about the perils of owning the shares. To say that investors need an appetite for risk simply doesn’t do it justice.

MORE DR. JEKYLL THAN MR HYDE

Over the course of the last few months, Shares has noticed that shares in the online grocery specialist have behaved erratically, with daily price swings two or more times the amount of the FTSE 100 index for no apparent reason.

Even more intriguing, there seems to be no obvious pattern to the stock’s behaviour meaning it often goes in the opposite direction to the index with no clear explanation.

To explore the phenomenon more closely, we analysed each day of trading over an 18-month period from the start of August 2021 to the end of January 2023.

First, we measured the daily movement in the share price and compared it to the daily moves in the FTSE 100.

Not only did Ocado shares go down in value more often than the index – a total of 201 out of 392 trading days or 51% of the time compared with 168 days or 43% of the time for the FTSE 100 – but they also lost much more than the index on down days.

In terms of volatility, Ocado shares have lost 1.5% or more on 131 of 392 days – roughly a third of the period in question – with an average loss on those days of 4.2%.

By comparison, the FTSE has only lost 1.5% or more on just 22 occasions in the last 18 months with an average drawdown of only 2.2%.

It is a similar story on good days, with Ocado registering 106 daily moves of 1.5% or more to the upside and an average gain on those days of 4.5% against 19 days for the FTSE and an average gain of just 2%.

What is more, volatility in Ocado shares has increased sharply of late with the last six months accounting for almost half of the 1.5% or more down days – including more than 20 daily moves of more than 5% and the biggest one-day loss of 16.8% – so not only is the frequency of losses increasing but so is the magnitude.

By contrast, the biggest daily loss for the FTSE was 3.9% – the same magnitude as its biggest gain, which came a day later – yet on both of those days in February last year, following the invasion of Ukraine, Ocado shares were barely changed.

IS OCADO THE NEW GAMESTOP?

Give the lack of correlation with the FTSE – we couldn’t even establish a mathematically meaningful negative correlation, where Ocado shares had an equal and opposite reaction to the index – there is clearly something else driving the daily price moves.

We suspect the answer lies partly in the fact the company is profitless, and like many profitless US-listed companies it has gained ‘meme stock’ status.

In the more than 12 years since the company joined the market, it has yet to deliver an annual profit although operating earnings always seem to be tantalisingly just around the corner according to management.

Should we compare the daily gyrations in the Ocado share price not with the FTSE 100 but with something much more risk-on, such as the Nasdaq 100 index?

At first glance, the Nasdaq is a better fit as it shows not only a higher proportion of down days overall but a higher number of 1.5% or more moves up and down than the FTSE.

Also, the magnitude of daily swings in the Nasdaq looks more like that of Ocado and the volatility of the index has increased markedly in the last six months although not quite to such an extreme level.

There is also a greater correlation between big daily moves up or down in Ocado and big moves in the Nasdaq: for example, in the week the benchmark jumped more than 9% (in November last year), Ocado shares put on 28%.

Yet there are still too many unexplained moves in the share price over the past 18 months for us to feel entirely comfortable saying Ocado is simply a proxy on the Nasdaq.

The bottom line for anyone considering buying the stock is it is much higher risk than it appears at first glance, and it seems to be driven more by sentiment than by fundamentals.

The share price is so volatile and unpredictable that unless you have nerves of steel and are prepared to put up with seeing your investment whittled away, it is not a stock we would recommend owning.

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