Once hailed as the future of grocery shopping, Ocado (LSE: OCDO) has seen its shares plummet by a staggering 75% over the past five years. So, is Ocado a fallen angel ready to spread its wings again, or a cautionary tale of tech hype gone wrong? Let’s take a closer look.

From boom to gloom

Cast your mind back to 2018, when growth shares were riding high on a wave of optimism. The company had just inked a game-changing deal with US grocery giant Kroger, promising to revolutionise the American grocery landscape with its whizzy automated warehouses. Investors were salivating at the prospect of it becoming the ‘Microsoft of retail’, licensing its technology to supermarkets worldwide.

Fast forward to 2024, and the picture looks decidedly less rosy. Annual earnings have declined by 20% every year since 2019, and debts have been steadily climbing. The much-vaunted technology solutions business has been slower to take off than many hoped, while its UK retail joint venture with Marks & Spencer has struggled to turn a profit. The pandemic-induced online shopping boom has fizzled out, and traditional supermarkets have significantly upped efforts in the digital space.

Before writing off Ocado completely, let’s consider the positives. The company still boasts cutting-edge technology, with thousands of patents to its name. Its automated warehouses, when running at full capacity, can be incredibly efficient. And with labour costs rising globally, the appeal of robot-powered solutions could grow. The recent launch of its ‘Orbit’ system, designed for smaller warehouses, could open up new markets and customers.

But here’s the rub: management has yet to prove it can translate its technological prowess into consistent profits. The company has only turned a profit in three of its 23 years of existence. That’s a long time for investors to wait for a return on their money, especially in a market that’s increasingly focused on near-term results.

The road to recovery?

So, can Ocado’s share price stage a comeback? It’s possible, but it won’t be easy. Clearly, management needs to demonstrate it can generate sustainable profits, not just in its UK retail business, but also from its technology solutions. Landing another big fish like Kroger could reignite investor enthusiasm. Showing it can roll out and scale up its solutions more quickly and cost-effectively would be a big plus. If investors start valuing the firm more as a technology company than a grocer, it could lead to a re-rating of the shares.

To me, the company’s future – and its share price – hinges on its ability to prove that its technology isn’t just clever, but commercially viable on a grand scale.

Not for me

For investors with a high risk tolerance and a long-term view, the company might offer an intriguing turnaround opportunity. The technology still has the potential to disrupt global retail, and at current prices, investors aren’t exactly paying a premium for that potential.

However, for those seeking more immediate returns or with a lower appetite for risk, there might be safer harbours. In the end, I think Ocado’s tale is far from over. Whether it becomes a phoenix rising from the ashes or a cautionary footnote remains to be seen. One thing’s for sure – it’ll be a fascinating story to watch unfold, but I’ll be passing on this one for now.