Ocado (LON: OCDO) share price popped by more than 30% on Tuesday as investors cheered the latest expansion of the company. The stock surged to a high of 625p, which was much higher than the year-to-date low of 382p.
Ocado expands in South Korea
Ocado share price went parabolic on Tuesday after the company announced its expansion to South Korea. It did that by signing a deal with Lotte Shopping, a large retailer in the country.
Ocado will now be tasked with building a network of robotic warehouses using its Smart Platform. It will also provide technology for online order processing. This is important since Lotte operates more than 1,000 shops in South Korea and generates over $11 billion in revenue.
Ocado’s Smart Platform has been a laggard recently. It has not attracted any new order since partnering with Auchan earlier this year. The service has 12 partnerships in countries like the US, Japan, Spain, and France. Ocado will therefore build six fulfillment centers for Lotte by 2028. The first center will go live in 2025.
Ocado share price has rebounded recently after a series of positive headlines. The most recent catalyst for the stock was the retail news on proposed merger of Kroger and Albertsons. Analysts believe that the combined company will use Ocado’s warehousing technology, as I wrote in this article.
Still, Ocado faces several risks going forward. First, there are worries that US regulators will not allow the merger between Albertsons and Kroger. The merger will create a major US retailer and that could lead to higher costs.
Second, inflation is still a major concern, meaning that consumer spending will remain under pressure. Finally, the deal with Lotte means that it will take a longer period for Ocado to become profitable.
Ocado share price forecast
The four-hour chart shows that the OCDO share price went parabolic on Tuesday. As it rose, it approached the key resistance level at 695p, which was the lowest level in May. The stock remains above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) rose to the overbought level.
Therefore, I suspect that these gains will not hold for the rest of the month. The shares will likely pause these gains as the momentum fades. If this happens, the next key level to watch will be at 522p.
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