Two super growth stocks I'd dump today

Updated: 
Ocado grocery delivery vans

Deciding when to sell a stock is as tricky as working out the right time to buy one. However, I don't think the decision is so difficult with these two companies. If I held either of them, I would dump them today

Pure food

E-tailer Ocado Group(LSE: OCDO) calls itself the world's largest dedicated online grocery with almost 600,000 customers. It has ambitious plans to cash in on the booming market for Britons to do their weekly shop online, which is set to make up 9% of the £179bn grocery market by 2021, up from 6% today.

Its rapid share price growth reflects this opportunity, with the stock soaring 206% over the past five years. This figure is rather flattering, as it masks three years of decline dating from 2013, but the recovery is under way, with the stock up 25% in the last six months. Some have been excited by talk of a mooted tie-up with Marks & Spencer, although this is far from settled at the moment.

A bit pricey

Ocado has certainly been motoring, boosted by existing supplier relationships with Waitrose and Morrisons, with sales up 13.6% last year to £1.267bn and profit before tax and exceptional items up 21.8% to £14.5m. Although debt widened from £127m to £164.9m, the balance sheet remains strong.

The company is no disaster but trading at a whopping 157 times earnings - and forecast to hit 342 times - you would hope that its growth prospects would be stronger. Worryingly, earnings per share (EPS) are forecast to drop 48% in the year to 30 November 2017, although they may rebound 34% the year after. With consumer confidence weak, the economy slowing, and food inflation still relatively high, this stock is way too expensive for me.

More reasons

It now seems a long time since Morrisons(LSE: MRW) suffered what once looked like a terminal meltdown. The stock has been booming lately, its share price up 45% over two years, and 25% over the past 12 months. I would never have guessed.

I certainly didn't expect such a dramatic rebound as German budget chains Aldi and Lidl continue to make inroads, customer wages continue to stagnate, and sentiment continues to decline. However, management has overhauled the business successfully, driving down costs and using keen pricing to reduce market share losses.

German inroads

Sales in the 12 weeks ending 21 May 2017 rose 1.9%, beating both Tesco at 1.8% and Sainsbury's at 1.7%, according to latest figures from Kantar Worldpanel. However, Aldi and Lidl's sales growth was almost 20%, that's 10 times as high, lifting their joint market share to a record 12%. Morrison saw its market share fall two percentage points to 10.5 points. Hardly disastrous, but the direction of travel is still wrong.

I swept the supermarkets out of my portfolio several years ago and I still see little reason to return to the fray. Perhaps I am being hard on Morrisons, with its EPS forecast to rise an impressive 18% in the year to 31 January 2018, followed by another 6% after that. The dividend is slowly being restored, with a current yield of 2.2% covered twice. However, trading at 22.5 times earnings, this remains a tough play in a tough sector.

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Harvey Jones has no position in any shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.