Ocado share price plummeted after earnings. It could get worse
Ocado (LON: OCDO) share price collapsed by more than 12% on Tuesday after the company published a weak trading statement. The stock crashed to a low of 700p, which was substantially lower than last week’s high of 981p.
Ocado business struggling
Ocado, the well-known e-commerce company is in trouble as inflation bites and the cost of doing business rises. In a statement, Ocado Group said that its retail segment generated sales of over 532 million pounds in Q3. This was a 2.7% increase compared with the same quarter in 2021 and 42% above the same period in 2019. Ocado Retail is a joint venture between Ocado Group and Marks and Spencer.
The trading statement said that the number of active customers rose by 23% YoY to over 946k. As a result, the average orders per week rose by 10.7%. However, with inflation at a multi-decade high, the average shopping basket has increased sharply in the past few months. It dropped by 6% to 116 pounds. Average orders per week increased to 374k.
Ocado share price tumbled after the company warned about its cost structure. It expects that energy costs will weigh on profitability in the fourth quarter. In a statement, the company’s CEO said:
“We remain focussed on providing Ocado Retail customers with the best possible value to help them navigate the cost of living crisis, and are encouraged by the positive underlying trends in the business which underline the value of Ocado’s differentiated proposition to customers.”
Therefore, these results cast doubts on how Ocado is valued by investors. In the past, the firm was being valued as a high-technology growth company. Now, a growth of just 2.7% means that the company is no longer a growth stock.
It also means that the company is severely overvalued considering that its market cap stands at 5.75 billion pounds.
Ocado share price forecast
Ocado stock price has been in turmoil as I wrote in my previous article. Sadly, the situation has gotten worse in the past few days. The shares have moved below all moving averages. And on Tuesday, the stock managed to move below the lower side of the bearish flag pattern. The MACD also moved below the neutral point.
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