Ocado’s share price has seen a huge amount of volatility in the past few years. The lockdowns sent the stock soaring as traders took the view that online grocery delivery would remain popular even after the pandemic, which it did to a certain extent, but now the repercussions of the pandemic have severely dented the stock. Prior to the pandemic, the share price was trading around 1150p, by mid-April, it cleared 1500p, and by September 2020, it traded above 2900p – a new record high. Throughout 2021 and early 2022, the stock handed back much of the gains that were notched up during the lockdowns. By May 2022, it had fallen below 1000p, so that underlined the strength of the bearish move.
Ocado revealed its first quarter numbers in March, and due to the cautious tone of the update, the stock fell. The firm warned about a significant increase in the cost of energy, raw materials, and utilities, and that was main message trader took away from the report. Active customers jumped by 31% to 835,000, and that speaks to rapid expansion. Not surprisingly, the average basket size dropped as some shoppers returned to the high street. The group is facing a more challenging environment amid high levels of investment, rising costs and customers that are feeling the pressure of 40-year high inflation. Things went from bad to worse as the company posted disappointing first half numbers in July. In the six month period, revenue fell by 4% and the pre-tax loss increased to £211 million – both metrics came in worse than expected. The harsher macroeconomic climate is hurting Ocado as shoppers are becoming savvier as a way of dealing with 40-year high inflation. The group’s joint venture with Marks and Spencer is not going well as initially planned, as middle-income consumers are bracing themselves for the cost-of-living crisis. Now that people are returning to the office to work, they are eating fewer meals at home, and in turn that is hurting the grocery company. Rising fuel and energy costs are weighing on the company too.
Ocado’s share price has fallen to its lowest mark in almost four years, while it holds below the 600p mark, it is possible the long-term bearish move will continue. Further declines from here could see it target 500p. If we see a snapback, it might retest 600p, and of that zone is cleared, it could pave the way for 680p to be targeted.