Ocado Group has become a fallen angel at the London Stock Exchange. The company’s stock price jumped from 158p in July 2020 and peaked at 2,900p in 2020. Since then, Ocado share price has tumbled by 75% and is currently trading at the lowest level since December 2018. It has lagged the FTSE 100 and S&P 500 indices. So, is it a buy?
Ocado has been a cash incinerator
Ocado Group was once hyped as London’s answer to other e-commerce giants like Amazon and Alibaba. The firm saw early success in its business operations. In the past few years, it has been in a transition. For example, instead of running its e-commerce operations, the company now uses a joint venture model. It has a JV with Marks and Spencer. Before the M&S deal, the firm had a long partnership with Waitrose.
At the same time, Ocado has entered deals with other large retailers across the globe. Some of its top clients are firms like Kroger, Bonpreu, Coles, Alcampo, Groupe Casino, and Auchan Retail among others.
Ocado has been a cash incinerator for a long time because of the large investments it has to make in its logistics business. For example, its annual revenue has increased from $1 billion in 2012 to over $3 billion in 2022. However, in this period, the firm has lost over $821 million. And the path to profitability is still uncertain as barriers to entry remain small.
To be clear. The recent crash of Ocado share price has lowered the valuation multiple. But, it is still a highly-valued company since it is still making heavy losses in a period of slowing growth. For one, its annual revenue growth in its most important business has been less than 10% in the past five years. This makes Ocado a high-risk investment.
Ocado share price forecast
OCDO stock has been in the red in the past seven straight months. As a result, the firm’s shares have moved below all moving averages. At the same time, the Detrended Price Oscillator (DPO) and the Know Sure Thing indicators have been in the red.
With no catalyst in the foreseeable future, the outlook for the stock is still bearish especially as interest rates rise. As a result, the company’s stock price will likely drop to about 600p. A move above 845p will invalidate the bearish view.