The Ocado share price continued its strong downward trend, turning one of the top UK companies into a fallen angel. After soaring to a record high of 2,913p in 2020, it has plunged to 306p. This plunge has erased billions in value in the past few years.
Why Ocado share price has plunged
Ocado Group is one of the biggest technology companies in the UK. It offers several solutions, including retail, logistics, and technology solutions.
Ocado Retail is an online supermarket serving about 80% of UK households. It operates as a 50:50 joint venture with Marks & Spencer.
The company also operates a logistics business, which runs fulfillment and delivery solutions for Ocado Retail and other chains like Morrisons.
Ocado’s technology solutions, which has over 3,000 patents, builds automated warehouses for retailers. Some of the retailers in its ecosystem are companies like Kroger, Sobeys, Groupe Casino, Coles Group, and Aeon.
Ocado share price has plunged despite modest revenue growth in this period. Its revenue rose to over £3.16 billion last year, much higher than £2.8 billion a year earlier. Its revenue stood at £1.4 billion.
One reason why the Ocado stock price has plunged is its strong losses. The company made a pre-tax loss of £375 million, down from £394 million a year earlier. Ocado’ total annual loss jumped to over £1.74 billion.
The most recent results showed that the revenue by 13% to £674 million in the first half of this year. Its technology solutions revenue rose by 15% to £277 million, while the logistics rose by 12% to £397 million.
Ocado Retail revenue continued growing in the year’s first half as the revenue continued growing. It revenue rose by 16% to £1.6 billion, while the gross profit jumped by 15% to £509 million.
Ocado’s retail segment’s EBITDA jumped to £33 million. Most notably, the average orders per week rose by 14% to £491 million, while the average order basket rose to £124.
On the positive side, the company has a path to positive cash flow. It made an underlying cash outflow improved to £108 million in the year’s first half, better than £201 million in the same period last year. The company reaffirmed its guidance and now hopes to become cash flow positive next year.
Ocado stock price technical analysis
The weekly chart shows that the OCDO stock price has been in a strong downward trend in the past few months.
Ocado has remained below the 100-week Exponential Moving Average, a sign that the downtrend is still intact. Its recent attempts to rebound failed at that moving average.
The Relative Strength Index (RSI) has dropped and is about to move below the neutral point at 50.
On the positive side, the stock has formed a falling wedge chart pattern on the weekly chart. This pattern is made up of two descending and converging trendlines, and could be about to retest the upper side. A break-and-retest pattern is a common bullish continuation sign.
Therefore, Ocado share price will likely drop to 250p, down by 25% from the current level and then rebound later next year.
The alternative scenario is where the stock rises above the important resistance level at 395p, its highest level this year and then continues its uptrend.
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