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The Ocado share price has crashed 31% in 3 months. Will OCDO rebound?

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After a fantastic 2020, this year has also started handsomely for shareholders of Ocado Group (LSE: OCDO). The Ocado share price continued its relentless rise during January after ending last year at 2,287p. At its 2021 closing peak, it reached 2,883p on 27 January. This was within a whisker of its all-time closing high of 2,895p on 29 September 2020. But then the shares headed sharply and steeply southwards.

Ocado shares crash since late January

As I write, the Ocado share price is exactly £19, down 62p (3.2%) on Wednesday’s close. In other words, it has fallen by almost £10 since its September 2020 and January 2021 peaks. Indeed, OCDO shares have plunged by more than a third (34.1%) since 27 January. As a result, the online grocer‘s market value has fallen to £14.7bn from a high above £22.3bn.

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To be honest, this steep setback to the Ocado share price was a long time coming. On 28 January, one day after OCDO’s 2021 peak, I warned that,“To me, Ocado looks like a bubble waiting to burst”. My remarks followed a near-30% rise in the shares in the first four weeks of this year. Hence, the recent collapse to below £20 comes as absolutely no surprise to me.

Ocado’s bubble bursts in 2021

For the record, here’s how the Ocado share price has performed over four recent timeframe:

1W 1M 3M 6M
-9.9% -6.2% -30.5% -23.2%

As you can see, the Ocado share price has turned from a star stock to dog of late, falling over all four periods. Furthermore, OCDO is the worst-performing FTSE 100 share over the past three months. It seems that, at least for now, Ocado’s bubble has burst. That said, this recent slump followed year after year of stellar gains. Here’s how OCDO has skyrocketed over the longer term:

1Y 2Y 3Y 5Y
16.9% 45.8% 247.0% 585.1%

Conversely, over the past half-decade, OCDO shares have been the #1 best performer in the Footsie, as well as one of the biggest winners over three years. Nice.

What next for the Ocado share price?

Forecasting short-term changes in share prices can be a very, very humbling experience. Stock prices can be pushed around by buying or selling pressures, individual company news, or wider economic events. What’s more, it’s impossible to value OCDO using conventional fundamentals. That’s because, as a loss-making business, it has a negative price-to-earnings ratio and earnings yield. Also, having never paid a cash dividend, Ocado’s dividend yield has always been zero. This makes forecasting the Ocado share price a particularly dangerous game.

Nevertheless, I feel that OCDO is on a knife edge at the moment. If the recent price momentum continues, then the shares might return to levels not seen since May 2020. However, if growth investors return to buying, then the Ocado share price could stage a comeback. Right now, so much depends on how Ocado’s sales perform as lockdowns ease and people return to shopping in the real world. If the group’s spectacular sales growth of 2020 can continue into 2021/22, then the future looks bright for Ocado. Even so, while the business remains heavily loss-making, I will avoid the shares for now. Even at these lower levels, my instincts as an old-school value investor tell me to avoid the Ocado share price today!

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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Ocado Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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