Ocado share price is rising: Here’s why you should avoid it

Ocado (LON: OCDO) share price retreated by over 5% on Monday as concerns about the company’s investment in Karakuri continued. The stock retreated to a low of 433p on Monday although it remains about 27% above the lowest level this year.

Karakuri collapse

The main reason why Ocado share price retreated sharply was news that Karakuri was on the verge of collapse after failing to raise additional capital. Karakuri is a British company that provides robotics services. Ocado Group is one of the biggest shareholders of the company. In a statement, the firm said:

“As a result, as of Monday, we will begin to wind down our operations and are working with external advisors on the next steps.”

Karakuri’s collapse comes at a time when Ocado is facing major headwinds in its key industries. The most recent UK retail sales numbers showed that the country’s e-commerce sales were falling after peaking during the pandemic.

Meanwhile, Ocado Solutions is seeing less demand. After adding South Korea’s Lotte Shopping as a customer in 2022, the company has not added any other retailer this year. This means that the service’s business will continue slowing down this year. 

The most recent results showed that Ocado Retail was not doing well. Its first-quarter revenue jumped by just 3.4% in the first quarter to £583.7 million while the average basket size dropped from 49 to 45. The number of active customers during the period rose to 951k. 

The challenge for Ocado is that the company’s investments in warehouses has pushed losses sharply higher. Its loss jumped to over £501 million in 2022 from the previous £176.9 million. Losses will likely narrow this year after the company paused the building of new warehouses.

Ocado share price forecast

OCDO chart by TradingView

I have been critical of Ocado stock price, as you can read here. On the daily chart, we see that the shares managed to move slightly above the important resistance point at 376.4p this month as it staged a strong recovery. This price was important since it was the lowest level in October last year.

Despite the double-digit gains, Ocado share price remains below the 50-day and 100-day exponential moving averages (EMA). It is also below the descending trendline shown in green. Therefore, the shares will likely continue falling as sellers target the next support at 376.4p.