Ocado share price forms risky pattern as Kroger woes mount

Ocado share price continued its painful crash this week as it plunged to its lowest level since 2013. It has plunged from the pandemic high of 2,910p to the current 187p as setbacks accelerated. So, is it safe to buy the dip in this fallen angel?

Ocado in trouble amid Kroger woes

Ocado, a top British e-commerce and technology company, suffered a big blow this week as its biggest client started to pull back. In a statement, Kroger said that its warehouse network was not achieving its goals. 

As a result, the company said that it was closing three such plants, taking a $2.6 billion charge. It will shift its strategy to using its store networks. 

This is a big blow for Ocado, a company that has historically talked about its relationship with Kroger when making pitches to other retailers. With this relationship in limbo, the company could face pressure from its existing customers.

Also, it means that the company may struggle to onboard other clients into embracing its automated warehouses. In a statement, an analyst said:

The Kroger announcement came as Ocado comes under pressure from other its clients. For example, Sobeys, another top Canadian retailer, paused the planned launch of its Vancouver expansion. It also changed its deal with Ocado, allowing it to use other warehouse tech providers. 

Morrison’s another top Ocado client, has also said that it would reduce its use of Ocado. As such, there is a risk that more clients will do that. 

READ MORE: Ocado shares sink 11% as Kroger reviews warehouse strategy

One of the top risks for the company is that some other delivery companies like Instacart and DoorDash, have become more popular among customers and retailers. 

The most recent results showed that Ocado’s revenue rose by 13% in the half year to £674 million. It technology revenue rose by 15%, while the logistics segment rose by 12%. However, its underlying cash flow was minus £108 million. 

Therefore, the scaling down of its relationship with Kroger will likely have a negative impact on its revenue in the long term. In its recent report, the company said that Morrisons paid an exit fee of ~£17 million, while Kroger will pay it £250 million, a notable amount for a company now valued at £1.5 billion. 

Ocado share price technical analysis 

OCDO stock price chart | Source: TradingView

The weekly chart shows that the OCDO stock price has been in a strong downtrend in the past few months. It has remained below all moving averages and the Supertrend indicator.

A closer look shows that the stock has formed a descending triangle pattern. This pattern is made up of a horizontal support, which in this case, is at 222p and a diagonal line. This diagonal line connects the highest swings since February 2022. 

Therefore, the stock will likely continue falling as sellers target the next key support at 150p. This outlook is based on its weak technicals and the fact that its technology business is struggling.