There’s more pain to come for investors in British grocery technology company Ocado , according to short seller Chris Dale. The chief investment officer at Kintbury Capital expects Ocado’s shares to fall a further 45% from Wednesday’s close of £6.60 down to about £3.75 ($4.52) a share. Short sellers profit when stocks fall. They borrow shares to sell them immediately with a plan to repurchase them when the price is lower to pocket the difference. The hedge fund, founded by Dale in 2015, currently holds a bearish bet worth £32.6 million, or 0.59% of Ocado’s freely floating shares, which is down from its peak of 0.82% on Oct. 31, according to data from the U.K.’s Financial Conduct Authority. Short sellers often take profits by gradually reducing their bets if the share price drops over time. The short interest in Ocado has risen to more than 4% of its stock in recent months after a two-year lull. Kintbury Capital is far from the only hedge fund selling Ocado’s stock short. AHL Partners, AQR Capital, Gladstone Capital and D. E. Shaw & Co. are the other firms currently holding a significant short position in Ocado. Shares of Ocado have already declined 62% this year. By Dale’s estimates, Ocado’s market capitalization will need to fall from £5.45 billion to £3 billion. Besides delivering groceries in the U.K., Ocado licenses its technology and builds highly automated warehouses for grocery companies around the world. Ocado plans to build 64 such warehouses, which the company calls “Customer Fulfillment Centers,” in 10 countries. Earlier this month, Ocado’s shares soared by 32% after a new deal to construct six CFCs for South Korea’s Lotte Shopping was announced. Ocado said Lotte would pay an upfront fee, estimated by analysts to be £15 million per CFC, to develop them in addition to recurring payments once the facilities are live. However, Morgan Stanley’s analysts said Lotte had committed to only two CFCs, which will be built only by 2026, with the option to construct four additional CFCs by 2032. Ocado also has agreements with Japanese retailer Aeon and American grocer Kroger with similar timelines. Pipeline ‘more aspirational than confirmed’ “The [CFC] pipeline is more aspirational than confirmed,” Dale told the Sohn London investment conference last week. “When that pipeline is built will depend on whether anyone can make money out of the technology. And after many years in the U.K., this is yet to be proven.” Dale said the market had overvalued Ocado as if all the CFCs would go live tomorrow. Ocado did not respond to a CNBC request for comment on this article. The hedge fund manager said he believes that since the CFCs won’t incur any earnings until they’re operational, the company will be forced to raise fresh capital to keep it “afloat as a going concern” in the meantime. However, analysts at investment bank UBS said the company would not need additional funding to build Lotte’s CFCs. “They’re going to need to raise equity next year, the year after, the year after that, and the year after that. And if current [share] prices hold, that would mean a 10% dilution every single year,” said Dale. The fund manager also said it expects Ocado will be unable to raise new debt since interest rates have risen significantly. As an indicator of how punishing the credit markets have been to non-profitable growth companies, Ocado’s bond due in 2027 is currently trading at 66.6 pence in the pound, offering a yield of 10.97%. That is significantly higher than the yield of 0.34% when the debt was issued in June 2020. Dale, who’s worked in finance for 29 years, said he doesn’t believe Ocado’s grocery delivery business is profitable enough to keep share prices up in the long term. He estimates Ocado earns about £10 for every order of £100, despite having a gross profit margin of 35%. “This technology only works with high-margin food delivery, such as M & S and, before that, Waitrose. It’s a niche, not a mainstream market. You need expensive food with a big basket to even get close to making any money,” he said. Ocado, which has been listed since 2010, reported exceptional earnings for its retail arm in 2020 and 2021, when COVID-19 restrictions meant Ocado’s food delivery business saw a rise in the average order size as well as the number of orders. In 2022, however, rising inflation and interest rates have proved to be headwinds for earnings. “Ocado has got too much capacity, basket sizes are back to pre-pandemic levels and might actually be even worse with inflation being at 12-13%,” Dale told investors at Sohn. Shares of M & S , for comparison, have also declined by 48% this year. But the selloff is significantly greater than larger supermarket peers such as Tesco and Sainsbury’s , where shares are down by about 20% this year.