Ocado Share Price is On the Cusp of a 21% Plunge

Summary:
• Ocado share price has remained in a consolidation mode as investors worry about the company’s lack of profitability and high interest rates.

Ocado share price has remained in a consolidation mode as investors worry about the company’s lack of profitability and high-interest rates. The OCDO stock price is trading at 863p, a few points above last year’s low. However, it has dropped by more than 70% from its highest level on record, bringing its total market cap to more than 7.8 billion pounds.

Is Ocado a good investment?

Ocado and other UK e-commerce players have come under intense pressure in the past few months. Investors have several concerns about companies like Boohoo, Asos, and even large players like Tesco and Sainsbury. 

First, there are issues of profitability. For over a decade, Ocado has focused mostly on growth without regard to profitability. As a result, the firm lost $248 million in 2021 and $178 million in the previous year. In the past decade, Ocado has been profitable for just three years. Now, instead of slowing growth and maximizing profits, the management is focused on growth. 

This month, the company said it was raising over $705 million to fund its expansion. It raised some of the cash by selling 72.3 million shares, which led to more dilution. It raised the rest through debt. Therefore, there are concerns that investors will wait longer for the company to get to profitability. Still, the capital raising was aligned with most analysts’ expectations.

While Ocado is in trouble, there is one key catalyst for the business. According to SimilarWeb, the number of Ocado’s website users rose sharply in May. At the same time, as shown below, its Android application’s usage has risen significantly recently. This could be a sign that demand for its services is rising. 

Ocado share price forecast

The daily chart shows that the OCDO share price has been in a strong bearish trend in the past few months. The stock found a strong support at 686p, which was the lowest level this year. Along the way, Ocado has remained below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) remains at the neutral level of 50.

Therefore, with the company facing significant headwinds, there is a possibility that the stock will have a pullback in the near term. If this happens, the next key support level to watch will be at 686p, which is about 21% below the current level. A move above the key resistance at $964 will invalidate the bearish view.