Ocado share price continues to consolidate near its eight-year low as concerns about its growth and profitability accelerate. It has dropped from a record high of 2,916p in 2021 to the current 280p. Its market cap has plunged from over £2.3 billion in 2021 to about $2.34 billion. Is Ocado a good contrarian stock to buy?
Ocado share price technical analysis
The weekly chart shows that the OCDO stock price has been in a strong bearish trend in the past few years. As a result, the stock has remained below all moving averages.
However, there are signs that the stock may surge later this year, especially if it reports strong financial results.
This chart indicates that it has formed a falling wedge pattern, characterized by two converging trendlines that slope downward. A major bullish breakout typically occurs when the two lines converge, which is currently happening.
The stock is also showing signs that it has formed a bullish convergence pattern. This is a common pattern that occurs when oscillators, such as the Relative Strength Index (RSI) and the MACD, move upward gradually as an asset continues to fall.
Therefore, a combination of a falling wedge pattern and a bullish divergence raises the possibility of a bullish breakout. If this happens, the initial Ocado price forecast is about 350p. A drop below the key support at 235p will indicate more downside on the lower side of the wedge.
Potential catalysts for the Ocado stock
Ocado stock price has been in a strong downtrend in the past few years as its growth has stalled, delays in robots warehouse rollouts, persistent losses, and a disappointing financial outlook for the year.
The most recent results showed that Ocado Group’s annual revenue in 2024 jumped to £1.21 billion, up from £1.1 billion a year earlier. This growth primarily occurred due to Ocado Retail, its joint venture with Marks & Spencer, one of the leading retailers in the UK.
The JV leverages Ocado’s expertise in e-commerce with MKS’ national reach across its hundreds of stores in the UK. The two companies own an equal share of Ocado Retail, which MKS paid £750 million for.
Its financial results showed that Ocado Retail had a revenue growth of 13.9% last year as the company continued to gain market share. Ocado also crossed the 500,000 orders per week milestone in 2024 as its business boomed. It also has increased its market share in online retail to 12.9%.
Read more: Ocado share price outlook: buy the dip or sell the rip?
Ocado’s technology business has also grown in the past few years, but this growth is offset by the company’s struggles to secure new partnerships. It has not signed any substantial deal with a retailer in the past few months. Also, rollout to existing clients like Kroger has been slow.
The other positive is that Ocado is working to boost its profitability. It reported an adjusted EBITDA of £121 million, up from £51 million the previous year. Its free cash flow improved from a loss of £381 million to £163 million.
Ocado faces major challenges ahead, including its slowing technology and logistics business. Most recently, there are signs of a price war with Aldi, which may lead to a slower growth this year.
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