Ocado share price is plunging. How low can it drop?

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Ocado (LON: OCDO) share price continued unraveling as concerns about the company’s demand continued. The stock plunged to a low of 445p, which was the lowest level since January 2018. It has plummeted by more than 84% from its all-time high.

Ocado growth and profitability concerns

Ocado and other British retail companies like Boohoo, Tesco, and Marks and Spencer have been under intense pressure in the past few months as investors continue worrying about the British economy. Most of these shares have crashed by more than 20% as I wrote in this article last week.

The main concern is that the soaring inflation was having a major negative impact on retail spending. Indeed, recent data showed that the country’s consumer confidence and retail sales have been falling sharply in the past few months. 

In its most recent results, Ocado said that the company’s average shopping basket dropped by 6% in Q3. This happened even as the number of people buying in its platform increased by 23% to an all-time high of 946k.

Another key concern for Ocado is that competition in UK retail is rising. Recent data showed that Aldi, the German discount store, overtook Wm Morrison to become the fourth-biggest retailer in the country.

Still, the most important reason why the Ocado share price has plunged is profitability. For more than a decade, Ocado has prioritised growth over profitability. As a result, the company has spent billions of dollars in investments and made minimal profits. 

In June, the management continued to prioritise growth by raising another 885 million pounds to fund growth. For a company investing in growth, investors prefer one showing robust revenue growth. However, Ocado Retail’s revenue dropped by 8% year-on-year. 

Ocado share price forecast

The weekly chart shows that the OCDO share price has fallen in the past four straight weeks as concerns about the company continue. The stock has crashed to the lowest level since 2018. It has crashed below the important support level of 736p, which was the lowest level in May of this year.

Ocado stock price has crashed below all moving averages while oscillators like the Relative Strength Index (RSI) and the MACD have continued falling. Therefore, with the stock not attracting bids, there is a likelihood that the stock will continue falling. If this happens, the next key level to watch will be at 400p. This is in line with my previous forecast on Ocado.

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