Is Britain’s tech sector the next big short? An Ocado (OCDO) share price to watch closely

Ocado (OCDO) share price is down – but has it bottomed out? – Photo: Shutterstock

Britain’s big tech has been facing some pretty tough challenges lately. Following the trend of US tech stocks, companies like Ocado (OCDO) are down nearly 40% year-to-date (YTD). This is a huge underperformance compared to the FTSE 100, which is almost flat.

So what has happened to the UK tech sector so far? Have we hit rock bottom or is there still potential for short selling?

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UK tech sector

Even though most of the world’s tech companies are based in the US, the UK also has a booming tech sector. From tech grocery company Ocado Group (OCDO) to rescue tech company Halma plc (HLMA) – UK tech stocks have certainly made their mark.

As in the US, UK tech companies have thrived during the pandemic. As consumers stayed home, the tech sector exploded. However, as more people adopt a more hybrid way of working and return to the office, Britain’s big tech has seen a turnaround.

The share price of Halma (HLMA), which has a market capitalization of over £8 billion, is down more than 30% this year. Ocado (OCDO), which has a market capitalization of over £7 billion, is down more than 40% since the start of the year.

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UK tech stocks have seen a decline in share price this year – but have they bottomed out and if not, is there a short selling opportunity?

Capital.com reviewed Ocado Stock price (OCDO) Is it time to short UK tech stocks?

a chart showing Ocado's technical analysisOcado (OCDO) Technical Analysis as of June 8, 2022 – Photo: Capital.com / Source: Tradingview

Capital.com analyst Piero Cingari said: “Ocado (OCDO) is down 49% in the past year, and nearly 70% since all-time highs reached in October 2020. Fundamentally, OCDO is unprofitable and reported a net loss of £0.30 per share last year. »

“OCDO’s (OCDO) revenue margin has declined significantly due to increasing competition in the online shopping industry, rising input costs and lower customer demand due to rising fuel and utility costs,” Cingari added.

Cingari points out that the outlook for the coming years isn’t quite as promising – with the market consensus predicting that 2027 will be the first year of positive earnings per share for OCDO.

“From a technical perspective, OCDO has completed a bearish double-top reversal pattern, with prices returning to early 2019 levels. OCDO’s stock price has been trading below average 50-day simple moving (SMA) throughout 2022, indicating a strong downtrend,” Cingari said.

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“However, given the massive 70% drop since its ATH, the market has already priced in most of the skepticism around this company at these levels. The key resistance level is currently at the psychological level of GBP 10, which is the 50-day SMA,” Cingari explains.

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Inflationary pressures

The retail market has certainly drawn the straw when it comes to the current inflationary woes. As the cost of living rises and central banks raise interest rates, not only are the prices of goods rising, but consumers are feeling the pinch.

The March statement from the OCDO highlighted the slowdown in demand. While customer orders have increased, they are not buying as much and the average basket size has decreased by 15% and revenue has decreased by more than 5% in the quarter. Experts believe this was driven by consumers turning away from OCDO’s offering, in search of cheaper products.

Russel Pointon, consumer and media director at Edison Group, told Capital.com in May that consumers have shifted some spending elsewhere, putting pressure on the delivery economy.

That said, the possibility of OCDO’s share price falling even further is real.

Britain’s tech sector is currently coming under increasing pressure as macro headwinds cloud the landscape and stocks around the world tumble. So, for traders looking to sell short in this environment, there may be leverage involved, but remember – know when to sell before you even buy!

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