Ocado’s share price recovers

8 Jul 2022 04:55 PM

Ocado’s share price recovers

Ocado’s share price has undergone a lot of volatility in recent years. Amid the lockdowns during the pandemic, the share price soared north above 2,900p in September 2020. Even though it remained at an elevated level for the first few months of 2021, it never retested the record high. As it became clear that a vaccination for Covid-19 was on its way, the appeal of an online grocery shop started to fade by spring of 2021. Ocado’s share price has been in a steady downtrend for well over one year, and it is now 35% below its pre-pandemic level. It is remarkable to think that two years ago, commentators were declaring that high street shopping would be finished off, and that e-commerce would reign supreme.

In the early 2010’s, Ocado struggled to get ahead as it was trying to expand its small market share in the UK, and it struggled for a long time to strike up joint ventures overseas. Investment in its business and operations process paid off as it has since signed agreements with nine international partners. It was a long-term payoff for the group.

In February, Ocado’s share price took a knock following the release of its full year results because traders were concerned about the level of funds earmarked for investment. The firm is performing well as total revenue ticked up by 7.2% to £2.5 billion. The international solutions division – the joint ventures unit – saw revenue surge from £16.6 million to £66.6 million as the number of live sites doubled. This shows the long-term strategy is working. EBITDA dropped from £73.1 million to £61 million, but that includes heavy investment in technology as five new customer fulfilment centres were opened.

Ocado revealed its first quarter numbers in March, and due to the cautious tone of the update, the stock fell. The firm warned about a significant increase in the cost of energy, raw materials, and utilities, and that was main message trader took away from the report. Active customers jumped by 31% to 835,000, and that speaks to rapid expansion. Not surprisingly, the average basket size dropped as some shoppers returned to the high street. The group is facing a more challenging environment amid high levels of investment, rising costs and customers that are feeling the pressure of 40-year high inflation.

Ocado’s share price dropped to a four-year low in May, but since then it has rallied. If the stock can hold above the 800p mark, the recent uptrend should continue, 952p might act as resistance. If the stock breaks below 800p, it could retest the May low of 691p.

Ocado will announce it first half figures on 21 July.

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