JP Morgan has raised its price target for Ocado Group PLC (LSE:OCDO) to 290p from 245p, reaffirming its overweight rating on the stock.
Analyst Marcus Diebel argues the market is valuing the technology group as if its customers were shutting warehouses rather than opening them.
Ocado shares have fallen 7% so far this year, underperforming against a 9% gain recorded by the FTSE 100 over the same period.
The stock has swung between 289p and 159p during that time, a range Diebel attributes to what he calls the asymmetric, event-driven nature of the investment case.
Ocado licenses its warehouse automation technology to grocery retailers around the world, having largely stepped back from operating as a retailer in its own right.
Diebel said the current share price does not reflect the value of contracts the company has already signed, let alone any potential new business it may secure.
On his estimates, the prevailing valuation implies further site closures rather than the incremental openings he believes are more likely to materialise.
Two key factors will determine the direction of the shares, according to the analyst’s note.
The first is a steady flow of new deals across both centralised fulfilment centres and store-based automation systems installed within existing supermarkets.
The second is delivering positive underlying cash flow by the end of 2026, and on a full-year basis by 2027, a milestone Diebel sees as increasingly achievable.
Recent news of a large new fulfilment centre customer reinforced his view that momentum is building across the business.
A more constructive tone from chief executive Tim Steiner on a recent investor call also strengthened Diebel’s confidence in the improving outlook.
The research note includes a deep dive into rival automation systems, with Diebel concluding that Ocado retains the ability to outbid competitors when bidding on new contracts.
He expects the next major catalyst to come from fresh customer announcements, alongside potential additional orders from existing clients including Asda.
Diebel described the risk and reward profile as highly attractive, while warning investors that significant share price volatility is likely to persist.