Is the Ocado Share Price a Bargain or a Value Trap?

Summary:
• What is the outlook of the Ocado share price? We explain whether the stock is a bargain or a value trap and whether it is a buy

The Ocado share price has been in a strong bearish trend in the past few months as investors worry about the company’s growth. OCDO shares are trading at 891p, which is the lowest it has been since February 2019. It crashed by about 70% from its highest level on September 20th. This makes it one of the worst-performing companies in the FTSE 100.

Ocado shares have dropped in the past four straight weeks straight as investors continue dumping the stock. In addition, there are concerns about the slowing retail business as people start shopping in stores. Indeed, the most recent data by the Office of National Statistics (ONS) showed that online sales crashed by more than 20% in March. This is notable since Ocado is a leading e-commerce player in the UK. 

There are also concerns about the company’s rising costs as most items’ price rises. The ongoing worker shortage has made the situation worse. At the same time, investors are worried about the company’s remuneration process as it decided to reward its high-level executives with over 20 million pounds. This is a sign that the company is rewarding incompetence since the shares have erased billions of value.

Meanwhile, while the Ocado stock price has dropped sharply, it is still trading at a premium. It is still losing substantial amount of money even as it is trading at 2.5x total sales. The performance of other e-commerce companies like Amazon and Alibaba has not been encouraging.

Ocado share price forecast

The weekly chart shows that the OCDO stock price has been in a strong bearish trend in the past few weeks. The stock has managed to move below the 61.8% Fibonacci retracement level. It has also moved below the 25-day and 50-day moving averages, while the Relative Strength Index (RSI) has moved below the oversold level. The MACD has moved below the neutral level.

The path of the least resistance for the shares will be to the downside. If this happens, the next key support to watch will be at 800p. A move above the resistance at 1,000p will invalidate the bearish view.