Ocado share price is in turmoil. Is it safe to buy the dip?
Ocado (LON: OCDO) share price remained under intense pressure on Monday as concerns about the e-commerce and technology company remained. The shares dropped to a low of 867p, which was lower than last week’s high of 987p. They are about 70% below the highest level in 2021, bringing its total market cap to about £7.16 billion.
Slow growth and lack of profitability
Ocado is a leading British company that provides e-commerce solutions in nationally and internationally. In the UK, the firm has a joint venture with Marks and Spencer, the giant retailer valued at over 2.7 billion pounds.
Ocado’s technology arm provides warehousing services to retailers in top countries. Some of the top retailers using its solutions are Kroger and Polskar among others.
Ocado share price has dropped sharply in the past few months because of three main reasons. First, investors believe that the company is no longer a growth stock. For one, its first-half revenue dropped by 4.4% to £1.26 billion. In the past, Ocado was being valued as a high-growth tech company.
Second, there are concerns about the volume of sales this year as inflation rises. UK consumer prices jumped by 9.4% in June this year, the highest it has been in decades. The same trend happened in countries like the US and Germany. As a result, there are concerns about demand and the cost of doing business.
Third, and most importantly, Ocado is a perennial loss-maker. In more than a decade, the company has spent billions of pounds and realised significant losses. For example, in the first half of the year, the firm recorded a loss of over £204 million.
Unfortunately, the management is still continuing with these investments. This year, it raised £875 million to fund expansion. £578 million of these funds were through capital placing while the rest was in form of debt. Therefore, investors are concerned about the company’s plans to become profitable.
Ocado share price forecast
The daily chart shows that the OCDO stock price has been in a strong bearish trend in the past few months. Recently, however, it has remained between the important resistance and support levels at 960p and 709p. It is also slightly above the 25-day and 50-day moving averages. It is also below the descending channel shown in black.
Therefore, at this point, the outlook for Ocado is neutral with a bearish bias. If bears prevail, the stock will likely retest the lower side of the channel at 709p.
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