- Summary:
- Ocado share price is at a risk of further declines. We explain why Ocado is struggling and what we should expect next.
Ocado share price relentless sell-off gained steam in March as investors remained sceptical about the company’s growth and profitability. As a result, the OCDO stock tumbled to a monthly low of 1,053p, the lowest level since March 2020. It is one of the worst-performing companies in the FTSE 100 index, having dropped by more than 62% from its all-time high.
Is Ocado a value stock?
Ocado has been a bad investment in the past few months. After peaking at 2,895p in 2020, it has lost more than 60% of its value. This performance is mostly because investors have realized how challenging Ocado’s business model is. For one, the company needs to initially spend millions of dollars building its giant warehouses before it starts making money.
Therefore, while Ocado has spent billions of pounds in the past decade investing in its growth, its profitability has been elusive. Data compiled by HL shows that the company’s net loss in the past four straight years has totalled over 525 million pounds. In the same period, it has continued investing a vast amount of money in its growth.
Ocado share price also tumbled as investors worried about the company’s cost of doing business. With the cost of everything rising, there is a likelihood that the company will see a significantly high cost of doing business. For one, the company needs to pay more money for fuel. Also, with the tightening of the labour market, it will continue to see margin compression.
So, is Ocado a good investment? In all fairness, the company’s share price has gotten much cheaper in the past few months. As a result, many investors may be tempted to buy the dip. Besides, the shares seem to have found strong support, slightly above 1,000p. Still, I see no signs that the company is about to have a turnaround. Besides, with central banks getting more hawkish, unprofitable companies will likely struggle.
Ocado share price forecast
I warned that Ocado’s shares would keep falling in my last article. Turning to the weekly chart, we see that the OCDO share price has been downward in the past few months. Along the way, it has moved slightly below the 61.8% Fibonacci retracement level. Notably, a closer look shows that the 200-week and 50-week moving averages are close to forming a death cross, which is where they make a crossover.
If this happens, there is a likelihood that it will continue falling as bears attempt to push it below the 1,000p level. This view will be invalid if it moves above 1,250p.
