Ocado (LON: LON:OCDO) share price continued its strong sell-off this week as concerns about its growth prospects continued. The stock tumbled to a low of 385p, much lower than its peak of 2,914p in September 2020. This means that it has collapsed by almost 90% from its all-time high.
Ocado’s fall from grace
Ocado Group has had a sad fall from grace as investors remained concerned about its future prospects and profits. The big issue is that its main business arms have not made substantial profits over the years.
Ocado’s revenue in 2023 rose by 9.9% to £2.8 billion. This performance was helped by its technology solutions business whose sales jumped by 44%. Ocado Logistic’s revenue rose by just 1% while its retail division rose by 7%.
Despite this revenue growth, Ocado Group continued losing money. Its cash outflow stood at £473 million while its net loss for the year was £394 million. To be fair, this loss included the £187 million that it paid to AutoStore in a settlement.
Ocado recently published its retail revenue for the first quarter. These numbers revealed that the total revenue for the division rose by 10% to £645 million as the number of customers jumped to over 1 million.
The main concern among most analysts and investors is whether Ocado can scale its operations profitably in the next few years. As a result, many analysts have delivered unfavourable views about the company.
Analysts at RBC recently slashed their estimate of the Ocado share price. Similarly, those at Goldman Sachs (NYSE:GS) and Bernstein trimmed their estimates for the stock. The only Ocado bulls are from JP Morgan, who upgraded it to neutral from underweight.
To be clear: Ocado Retail, its JV with Marks and Spencer (LON:MKS) is gaining market share while its technology business offers a good value proposition to its clients. However, it has struggled to attract more customers in the warehousing business.
At the same time, there are wrangles between Ocado and M&S over the payment details. M&S argues that the joint venture is not living to expectations and that it has continually missed targets.
Most recently, investors have been concerned about the compensation of Ocado’s CEO pay. The company is planning a £15 million bonus to the CEO in a period when the stock has plunged to its lowest level since 2018.
Ocado share price forecast
OCDO chart by TradingView
Turning to the weekly chart, we see that the OCDO stock price has been in a strong downtrend in the past few years. The 25-week and 50-week Weighted Moving Averages (WMA) have formed a bearish crossover.
At the same time, the MACD has moved below the neutral point. Now, the most important aspect is that the stock is nearing the key support level at 341.2p, its lowest swing in June last year.
Therefore, a break below this support will point to more downsides since it will signal that bears have prevailed. It will open the possibility of it dropping to 300p in the near term. This is in line with what I predicted in December.