Ocado share price at risk as analysts predict a £410M loss

Ocado (LON: OCDO) share price has pulled back this year as concerns about the company’s future continued. The stock plunged to a low of 520p this week, its lowest level since November 14th. It has crashed by over 30% in the past 12 months, underperforming the FTSE 100 index, which has barely moved in that period.

Ocado Group is a leading retail and technology company that is also one of the most shorted in the UK. The company has three primary businesses. Ocado Retail is a joint venture with Marks and Spencer. It also has Ocado Logistics and technology solutions. 

Ocado has faced substantial challenges over the years as its cash burn has increased. Reports show the company had a net loss of over £500 million in the last financial year. It had lost £176 million and £52.3 million in the previous two years, respectively.

Ocado’s losses are mostly because of its investments in the warehouse business, which has not been growing faster than expected. The last deal the company announced came in November when it announced a partnership with McKesson Canada, its first non-retail customer. 

The most recent results revealed that Ocado’s business is not growing as fast as one would expect. Its revenue rose by 9%in the first half of the financial year to £1.4 billion. This growth was driven by its technology solutions whose revenue rose by 59%.

Its EBITDA was only £17 million while its loss jumped to over £289 million. Most of this loss came from its significant depreciation and amortisation.

Therefore, the challenge for Ocado is that it lacks a clear path to supercharge its growth in the near and long term. For one, analysts expect that its UK retail business will continue growing at a slower pace. 

The median estimate among analysts is that Ocado’s revenue came in at £2.76 billion in FY’23. Its retail business is expected to bring in £2.3 billion followed by £672 million and £412 million by logistics and technology divisions. Worse, analysts believe that the company’s profit before tax will be £410 million.

OCDO chart by TradingView

Ocado has been one of the worst-performing stocks in the FTSE 100 index. It has dropped by more than 82% from its highest point in September 2020. The shares have formed a head and shoulders pattern on the weekly chart.

It has also crashed below the 50-week Exponential Moving Average (EMA). Therefore, the outlook for Ocado is still bearish ahead of its earnings on February 29th. If this happens, the next point to watch will be at 342p, its lowest level on June 5th.

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