Ocado share price is soaring but major headwinds remain

Ocado (LON: OCDO) share price had a strong start of the year even as concerns about e-commerce stocks rise. The shares have risen by more than 16% in 2023, making it the top-performing stock in the FTSE 100. Other best-performing FTSE 100 constituents are companies like Carnival, EasyJet, IAG, and BT Group. 

E-commerce concerns remain

Ocado is a technology company in the retail sector. The firm, through its joint venture with Marks and Spencer, runs one of the most popular e-commerce platforms in the UK. This business is known as Ocado Retail. 

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The company also operates a business-to-business business where it provides warehousing solutions to other retailers. Some of the top companies it serves are Kroger, Auchan Retail, and Groupe Casino. 

At its peak, Ocado was one of the fastest-growing companies in the UK. Its business peaked in 2020 during the Covid-19 pandemic when most people were ordering their products online. 

Recently, however, Ocado’s business has struggled as inflation has soared to the highest level in more than 40 years. The company has also been under intense pressure as its business solutions business waned. It has signed less than 3 new clients in the past 12 months. Those it signed were Auchan Retail and Lotte Shopping, a South Korean giant, as I wrote here.

The e-commerce sector is struggling globally since people are now shopping in stores. In the United States, Amazon announced that it will lay off 18,000 people mostly in its retail division. Jumia, the Africa-focused e-commerce firm, started retrenchments in 2022. Other companies like Shopify and BigCommerce have announced major layoffs as well.

The outlook for Ocado is still dark. For one, the company will need to add more clients in its warehousing business. With the UK sinking in a recession, we could also see Ocado Retail struggle.

Ocado share price forecast

The 4H chart shows that Ocado stock price has been in a slow recovery in the past few days. It has managed to move above the 25-day and 50-day moving averages while the Relative Strength Index has moved close to the overbought level. The shares have struggled moving above the important resistance point at 747p.

Therefore, I believe that these gains could be temporary since the company faces more headwinds than tailwinds in 2023. A move above the resistance point at 755p will invalidate the bearish view.