Can Ocado Share Price Retest its All-Time High? Not So Fast
Ocado share price has bounced back this week as part of the broader equities rally. The shares are trading at 2,600p, which is a 17% gain from October’s low of 2,235.
Marks and Spencer reports first loss
Ocado shares dropped by more than 1% yesterday as traders reacted to the relatively disappointing quarterly results from Marks & Spencer (M&S).
In a statement yesterday, the company said that it made a pre-tax loss of more than £87.6 million in the past six months to September. That was the first loss it has ever reported in its 94 years history.
The disappointing earnings come at a time when England is expected to start a months long lockdown to slow the spread of the virus. That could put the retailer into more pressure as more people remain at home. Still, the firm will continue operating since it is considered an essential business.
This is where Ocado comes in. With more people in England expected to stay at home, there is a possibility that Ocado will see increased demand for its services as it did in the first half of the year.
For starters, Ocado and Marks & Spencer have a close relationship. In 2019, M&S announced a deal to acquire a 50% stake in the company. As a result, it is Ocado that powers M&S online retail business, which will help increase its demand ahead of the Christmas season.
Ocado has other business internationally. In the United States, it has already created a partnership with Kroger, the giant retail chain. It will provide logistics and warehousing services in exchange of a fee.
So, is Ocado stock a buy?
The ongoing lockdown together with a likely deal between the United Kingdom and the European Union will be positive for Ocado. Also, it seems like the trend to online shopping will not fade any time soon, which will be a good thing for the company.
Indeed, early this week, it boosted its full-year guidance, which is a good sign. It has also spent more than $287 million on acquiring two robotics companies in its American push.
However, there is still a big challenge about profitability as costs increase.
Analysts have a mixed opinion about the company. This month, analysts at Berenberg boosted their Ocado share price target from 2,430p to 2,530p. This means that their target is below the current high of 2,600.
Those at JP Morgan are relatively pessimistic. In their neutral outlook, the bank expects the shares to fall to 1650p.
Ocado share price technical outlook
On the daily chart below, we see that Ocado share price fell from a YTD high of 2,908p to a low of 2,235. This month, the shares have made a strong recovery, rising by more than 17%. The shares remain above the 50-day and 25-day moving averages. Notably, it has also formed a head and shoulders pattern that is shown in green. Indeed, the current level is at the right shoulder.
Therefore, I suspect that the price will soon retreat and possibly retest the October low at 2,235. This is because the H&S pattern is usually a bearish sign. The alternate scenario is where the stock continues to rally as bulls attempt to move above the YTD high of 2,900.