Ocado (LON: OCDO) share price has made a slow comeback in the past few days as investors react to a major merger in American retail. The stock jumped to a high of 502p, which was much higher than this month’s low of 391p. It remains substantially lower than its all-time high of 2,920p.
Buy the OCDO dip?
Ocado is one of the best-known e-commerce and technology companies that serves millions of customers every year. In the UK, the company has a joint venture with Marks and Spencer, one of the biggest retailers in the country.
Internationally, Ocado offers warehousing solutions to big retailers. With the world moving to e-commerce, Ocado’s solutions have been in a higher demand.
This explains why the Ocado share price has done well recently. It rose because of a proposed merger between Kroger and Albertson, two of the biggest supermarket chains in the country. If the deal goes through, the company will have a market cap of over $45 billion. This has been the most popular retail news this year.
This merger is seen as being bullish for Ocado, which has a long relationship with Kroger. Analysts believe that the combined companies will likely use Ocado for warehouse solutions. As a result, this could add Ocado’s customer fulfillment centers for Albertsons, which will translate into a 47-pence-per-share for the company.
Another potential catalyst for the Ocado share price is that analysts believe that it is undervalued. For example, those at Bernstein believe that it could grow to 1,500 pence, meaning that they expect it will rise by more than 220% this year. The average estimate for the stock is 1,456p, which is much higher than where it is.
Still, the challenge for Ocado is its lack of profitability. In the past few years, Ocado has spent billions without any meaningful profits.
Ocado share price forecast
So, should you buy Ocado? The daily chart shows that the OCDO share price has been in a strong sell-off in the past few months. This decline saw the price crash below the important support at 695p, which was the lowest level on May 25. The shares moved below all moving averages.
Most recently, the stock has rebounded as investors react to the proposed Kroger-Albertsons merger. However, we believe that the stock will resume the bearish trend as this excitement eases. If this happens, the next key level to watch will be at 400p.
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