Ocado 66% Off June Low, Where Next?

Press reports that Amazon could be looking to buy Ocado pushed the share price up over the last couple of days, but there is no bid confirmation yet.

The News Responsible for the Recent Jump

Shares in Ocado jumped over 40% in a single day on Thursday after UK press reports that multiple tech firms were looking to buy the supermarket-cum-tech giant —- it traded as low as 342p in early June, with the extra help teleporting it to 631p, 84% higher. Among potential bidders is Amazon, reportedly considering offering 800p/shr, 86% higher than the shares closed on Wednesday (430p). This would be a remarkable turnaround in value for the company, which was recently almost kicked off the FTSE 100 last month after losing 87% of its value since the pandemic's peak.

The prospect of several firms expressing interest raises the potential of a bidding war, which could push the offer price even higher. The company - and potential suitors listed in the media - refused to comment on the possible offer. How likely the rumours are valid depends on the stage negotiations are at. Ocado would be obliged to disclose it had received a formal approach, but if it were just a preliminary stage on the part of a foreign company considering a bid, then it would be up to the interested party.

Has the Transformation Paid Off?

In the wake of the changing grocer dynamics following the return to normal post-pandemic and the cost-of-living crisis, Ocado has doubled down on the tech side of the business. The shift has led the company to focus more on being a logistics and technical partner for grocers - particularly M&S, which has a more resilient customer base - than its stand-alone supermarket.

Amazon has aggressively pushed into the US grocery market through its acquisition of Whole Foods. Ocado could be a way for the tech and retail giant to repeat the same action in the UK after its grocery initiative hasn't gone as well as planned. Amazon plans to expand in Europe and would need the robots and logistics software that Ocado already has in place. Buying up the competition instead of buying its products might be more efficient. But only time will tell if this is just a rumour or if something more concrete will develop. And if the price will be as attractive as the media is saying.

Ocado price action seems to suggest the low is in, following the completion of a descending triangle, which was then followed by a 5-wave impulse lower at 342p. The break out from the upper trendline brings 937p but also 434p in focus, with interim levels being 703p and 808p on the one side and 471p on the other. If prices reverse, the stock could extend losses to new record lows.

Source: OCADO GROUP

Key Takeaways

Reports suggest that Amazon may be considering buying Ocado, resulting in over 40% jump in share price. The potential offer is rumoured to be 86% higher than the shares closed on Wednesday, leading to speculation of a bidding war. Ocado's focus on technology and logistics has attracted the attention of multiple tech firms. Amazon's push into the grocery market in the US has been successful through its acquisition of Whole Foods, and it sees Ocado as a potential way to do the same in the UK. However, negotiations are at an early stage, and it remains to be seen if any concrete developments will occur.