Ocado share price outlook: buy the dip or sell the rip?

Ocado share price continued in a strong downward trend, and is hovering near its all-time low as concerns about its business remained. It was trading at 325p on Wednesday, bringing the year-to-date losses to over 56%. 

Symbotic (SYM), one of Ocado’s biggest competitors, which is backed by Walmart, has also plunged hard this year. It dropped by more than 38% on Wednesday after it identified an error in its financials.

Ocado Group challenges have remained

Ocado Group is a leading British company in the e-commerce and warehousing industry. It has two main businesses: retail and technology solutions. Its retail business operates as a joint venture with Marks and Spencer. In this division, the company handles orders through its website and mobile applications.

Ocado Group’s technology business is involved in the automation of warehouses for other retail companies. Over the years, it has inked deals with several large retailers like Kroger, Coles, Casino Group, Sobeys, and Alcampo.

These retailers benefit from Ocado’s expertise in the warehouse industry. The alternative would be to hire workers, spend on research and development, (R&D), and build their automation solutions from the ground up. 

Ocado benefits from their scale and consistent revenue over time. In some cases, Ocado also signs exclusive deals, where it is the only supplier of these solutions. 

However, the industry has many challenges. The most notable one is competition, which comes from the likes of Symbotic, AutoStore, Fabric, and Takeoff Technologies. 

The other challenge is that many retailers have already selected their technology provider after the e-commerce boom of the pandemic era. This challenge is evidenced by the fact that Ocado has not signed a major retail deal this year.

Ocado Retail is doing well

On the positive side, there are signs that the Ocado Retail business is doing well even as the country’s retail sales retreated. 

Ocado Retail revenue rose by 15.5% in the third quarter to £658 million, helped by an increase in the number of customers. Its average customers in the quarter rose to over 1.06 million, up from 961,000 in the same period last year. 

Ocado also boosted its forward revenue guidance for the full year. It expects that its revenue will grow by low double-digit, while its EBITDA margin will be about 2.5%.

The other parts of Ocado’s business continued to do well too. Its logistics revenue rose by 6% to £354 million, while technology solutions jumped by 22% to £241 million. Also, Ocado Group slashed its losses in the first half of the year as its EBIT moved to minus £154 million.

Ocado’s key challenge is that it has failed to achieve profitability over years. Data shows that its cumulative net loss since 2016 was over £1.6 billion. It had a net loss of £216 million last year and this trend may continue this year as it continues investing in its tech business.

Ocado share price analysis

The daily chart shows that the OCDO stock price has been in a strong downward trend in the past few months. It has remained below the descending trendline that connects the highest swings since February.

The stock has also moved below the 50-day and 25-day Exponential Moving Averages (EMA). It is also trading at 325p, a few points above the key support at 317p, the lowest swing in September.

Ocado shares have also formed a symmetrical triangle pattern and are slightly above the lower side. Therefore, the path of the least resistance for the stock is bearish, with the next point to watch being at 278p, its lowest level in June this year. 

On the positive side, there is a likelihood that Ocado will rebound in 2025 if it demonstrates that it was on a path towards profitability. 

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