If in the past few months, you have used your smartphone or computer in order to buy groceries, there is an increased chance that you might have used the underlying technology which is developed by Ocado Group. Ocado group is powering the giant Kroger after their deal this month. Both the companies are also in negotiation for more partnerships all over the world.
The month of May has been pretty good for the shareholders of Ocado group. The shares have witnessed a 60% increase. This, after the announcement that it will tie up with Kroger in the US. According to Sherri Malek from RBC Analysts, the management has taken the right decision by tying up with the supermarket giant. They further added that the next target for the share is £ 7.5. However, after the recent run-up, the share is already trading at around £ 8.7.
Kroger will also be able to increase its stake to more than current 6% should it find the proposition attractive. Ocado group was founded in 2000. It had a dual approach business model. It sold groceries directly to the consumers and it also developed the technology to power such platforms which can reach out directly to the consumers. Their other clients include Guichard Perrachon, Morrison Supermarkets, Sobeys.
The shares have already run up by a significant amount which indicates that the market participants are bullish on the company. According to some, the valuation of the company is pretty rich. It is trading at a P/E ratio of 5000. The problem is, the company is not able to report profits currently. It will only be able to report profits in 2019. As a result, the valuation seems to be quite rich for a company who is not reporting any profits yet. It remains to be seen whether it continues to rise further or whether it falls back to the original levels.
Great potential in the tie-up:
Kroger will be able to take on the likes of Amazon as well as one with the help of this tie-up. As a result, it will be able to bolster its market share as well. Thus, it is a win-win situation for both the companies. This is the reason why the competition is heating up in the US retail space. More and more retail chains are focusing on digital marketing and the digital platform which they have. As a result, companies are tying up in order to get a strong technological back in. This tie-up is also done with the same purpose.
Keyword: Ocado group, Kroger, Amazon