Ocado share price is rebounding: Is it safe to buy the rally?

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on Mar 31, 2023
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  • Ocado stock price rebounded this week after the strong financial results.
  • Its retail operations saw its revenue jump by ~3.4% in Q1.
  • There are still ongoing concerns about its combined business.

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Ocado (LON: OCDO) share price made a comeback this week after the company published a strong trading statement. The stock jumped to 529p on Thursday, the highest point since March 3 of this year. It has jumped by ~30% from the lowest level this year.

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Ocado Retail strong results

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The top retail news of the week was Ocado’s trading statement. In its report, the company said that its retail revenue came in at £584 million, which was a 3.4% increase from the same period last year. 

Its average orders rose by 3.6% to 381k while the number of active customers jumped by 13.8% to 381k. Another figure showed that the company’s average order basket remained the same even as inflation remained at an elevated level during the month. In a statement, the company’s retail head said:

“We continue to attract more and more customers to Ocado, by investing in great value for customers including our new Ocado Price Promise and providing unbeatable choice and service. This means more perfect orders that are on time and in full, with deliveries back to the kitchen table.”

These results were a good surprise for Ocado, a company that has seen its business growth slow after peaking during the Covid-19 pandemic. Most importantly, its retail division, which is a joint venture by Marks and Spencer, did well at a time when inflation remains at an elevated level. 

The challenge is that Ocado Group is still seeing slow growth overall. A 3.6% revenue growth is not all that good considering that other e-commerce companies are still growing by over 10%. 

Further, there are also concerns about the company’s technology solutions business. Year-to-date, Ocado Platform has not announced any new retail partner. The most recent partner was  South Korea’s Lotte Shopping.

Ocado share price forecast

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Ocado share price

OCDO stock by TradingView

I have been bearish on Ocado stock price for a long time. In my last article on the company, I warned that its business model was broken and predicted that it will continue dropping. This forecast was correct as the stock dropped to a low of 407p.

Recently, the stock has bounced back smoothly and reached a high of 533p. It remains below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) moved above the neutral point.

I believe that this recovery is unconvincing and that the stock will resume the bearish trend. If this happens, the next level to watch will be at 376p, the lowest point in October 2022.

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