Ocado share price has done well in the past few weeks. The shares surged to a high of 681p, which was much higher than October’s low of 385p. Its rebound makes it one of the best performers in the FTSE 100.
Why did OCDO surge?
Ocado shares surged this week after the company unveiled its latest deal for its warehouse automation solutions. The firm will partner with Lotte Shopping, a leading South Korean retailer. According to the company, the deal will see it build several automated warehouses as it seeks to expand its online business.
The deal was an important one for Ocado, a company that has struggled to add more retail clients in its service list. Lotte Shopping is an important company in South Korea that is owned by Lotte Group, a leading conglomerate. In a note, an analyst at Quilter Cheviot said:
“Lotte is a major player in the South Korean market and this deal has the potential to have some sort of halo effect across the rest of Asia, showcasing Ocado’s technological capabilities to a very large market.”
Ocado share price rose sharply after the merger of Kroger and Albertsons in the US. The combination brings two of the biggest supermarket chains in the US. Investors believe that Ocado will be called upon to build more automated warehouses for Albertsons.
However, a key risk for the company is that the deal is not assured. Employees and policymakers have called for the Financial Trade Commission (FTC) to stop the deal. The fear is that the company will become too big and limit competition. As a result, consumers will likely need to spend more money for the same items. Kroger and Albertsons argue that merging will lead to more cost-savings and a bigger negotiation power, which will automatically lead to lower prices.
Another main risk is that Ocado Group’s business will likely remain unprofitable for a long time. That’s because the company will need to allocate cash toward these new infrastructure projects in South Korea and in the US. Ocado has not achieved any meaningful profitability in the past decade.
Ocado share price forecast
The daily chart shows that the OCDO share price has made a strong recovery in the past few days. The stock approached the important resistance level at 695p, which was the lowest level on May 25. It also crossed the key resistance at 522p, which was the highest level on October 26
Ocado shares have moved slightly above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved close to the overbought level. Therefore, I suspect that the shares will retreat slightly as this enthusiasm fades. If this happens, the next key level to watch will be at 550p. A move above the resistance at 697p will invalidate the bearish view.
