Funds Continue to Short Ocado Shares – Here’s why

Ocado (LON: OCDO) shares have rallied more than 24% in the last week, but the online grocery giant remains a contentious stock among investors, with several firms going short.

The company has seen short positions continue to climb, making it the third-most shorted London-listed stock, as doubts persist.

Despite increasing sales, Ocado has struggled to achieve consistent profitability, with hefty losses reported in recent years. The core issue lies with its joint venture with Marks & Spencer, Ocado Retail, which has faced challenges in making online grocery shopping financially viable due to high infrastructure and delivery costs.

While Ocado's technology division, which provides its robotic warehouse technology to other retailers, holds promise, the company has missed analyst expectations for new contract signings. Additionally, a dispute with Marks & Spencer over performance-related payments has further eroded investor confidence.

More than 7% of Ocado shares are shorted by funds, including Gladstone Capital, D1 Capital Partners, and Arrowstreet Capital. With consistent concerns about its growth prospects, Ocado faces a challenging path ahead.

Key factors contributing to the bearish sentiment include its persistent losses and challenges in achieving profitability, the slowdown in its sales growth after the pandemic-driven surge, the recent dispute with Marks & Spencer over performance-related payments and the high levels of short interest among investors.

The recent rise in its share price seems to have been boosted by the news that Ocado will continue expanding its partnership with Aeon. The plan is to construct a third Customer Fulfillment Centre in Kuki-Miyashiro, the Saitama region of Japan.

If Ocado is to navigate the continued headwinds, it will need to demonstrate clear progress toward profitability and secure new contracts to reassure investors and potentially reverse the negative sentiment surrounding the stock.