​​​Ocado shares surge ahead of earnings, but scepticism persists

​​​Ocado shares surge ahead of earnings, but scepticism persists

Ocado has seen its shares rally an impressive 24% in just over a week leading up to its earnings report. This surge comes despite the company's status as a contentious stock among investors, with several funds maintaining significant short positions.

​High short interest reflects ongoing concerns

​Despite the recent share price jump, Ocado remains the third-most shorted stock on the London Stock Exchange (LSE). Over 7% of its shares are currently shorted by various funds, including Gladstone Capital, D1 Capital Partners, and Arrowstreet Capital. This high level of short interest underscores the persistent scepticism surrounding the company's business model and growth prospects.

​Profitability struggles continue to weigh on investor sentiment

​At the heart of investor concerns lies Ocado's ongoing struggle with profitability. The company has reported significant losses in recent years, casting doubt on its ability to achieve sustainable financial success. A key factor in this struggle is the performance of Ocado Retail, its joint venture with Marks & Spencer, which has faced challenges in making online grocery shopping financially viable due to high infrastructure and delivery costs.

​Technology division shows promise, but faces hurdles

​While Ocado's technology division, which provides robotic warehouse solutions to other retailers, holds potential, it has failed to meet analyst expectations for new contract signings. This shortfall has dampened enthusiasm for what many see as a crucial growth driver for the company.

​Dispute with Marks & Spencer adds to investor concerns

​Further complicating matters is an ongoing dispute with Marks & Spencer over performance-related payments. This disagreement has eroded investor confidence and raised questions about the stability of Ocado's key partnerships.

​Recent share price boost tied to Aeon partnership expansion

​The recent surge in Ocado's share price appears to be driven by news of an expanded partnership with Japanese retailer Aeon. The companies plan to construct a third Customer Fulfilment Centre in Japan, signalling potential growth in Ocado's international operations.

​Path forward: Demonstrating profitability and securing new contracts

​For Ocado to overcome the persistent headwinds and scepticism it faces, the company will need to demonstrate clear progress toward profitability in its upcoming earnings report. Additionally, securing new high-profile contracts for its technology division could help reassure investors and potentially reverse the negative sentiment surrounding the stock.

​As Ocado prepares to release its latest financial results, all eyes will be on whether the company can deliver concrete evidence of a sustainable path to profitability, or if the recent share price rally proves to be short-lived.

​Technical analysis on the Ocado share price

​Ocado’s share price, still down nearly 50% year-to-date, is seen bouncing off its 278.2 pence June low towards the 2021-to-2024 downtrend line at 396.1p. Around it the recent swift advance in the Ocado share price might struggle, at least in the short-term.

​Ocado monthly chart

​For a longer term bullish reversal to take shape, a rise and daily chart close above the May peak at 417.0p would need to unfold. Only then would the 200-day simple moving average (SMA) at 486.7p be back in focus.

​Ocado daily chart

​While the long-term downtrend line at 396.1p and the psychological 400p region cap, a slip back towards the 55-day SMA at 346.2p may still ensue. Below it significant support can be spotted between the April-to-May lows at 335.2p-to-332.7p. This would be expected to hold, if revisited at all.

​If fallen through, however, the June trough at 278.2p would be back in sight.

​Analysts recommendations and IG sentiment

​Fundamental analysts are rating Ocado as a ‘hold’ with LSEG Data & Analytics showing 4 strong buy, 2 buy, 5 hold and 4 sell - with the mean of estimates suggesting a long-term price target of 680.67p pence for the share, roughly 76% above the share’s current price (as of 12 June 2024).