Ocado stock, which has had a rollercoaster ride since its market debut in 2010, had risen 11 percent over the last month after the firm sealed a new distribution deal with Morrisons, Britain's No. 4 supermarket.

Those gains were wiped out on Tuesday, however, as analysts trimmed their earnings forecasts.

The stock was down 14.6 percent at 275 pence by 0946 British time, valuing the business at 1.72 billion pounds.

"As the market remains very competitive, we are seeing sustained and continuing margin pressure and there is nothing to suggest that this will change in the short term," said Chief Executive Tim Steiner.

Finance chief Duncan Tatton-Brown explained Ocado's policy was to follow the major players in the grocery market, including market leader Tesco, on price.

"Therefore when market prices are down our prices are down," he said.

But he still expected Ocado's sales to grow ahead of the online grocery market, and substantially ahead of the market overall.

Prior to Tuesday's update, analysts were on average forecasting full-year core earnings of about 88 million pounds, up from 81.5 million pounds in 2015.

Analysts at Numis, who have a 'buy' rating on the stock, cut their forecast to 85.1 million pounds from 87.5 million - "recognising that the industry-wide pricing pressure on basket size is likely to weigh on gross margin."

Ocado, whose range includes products supplied by upmarket supermarket Waitrose, said gross retail sales rose 13.6 percent to 286.4 million pounds in the 12 weeks to Aug. 7, its fiscal third quarter. That compared with first-half growth of 13.9 percent.

Gross sales, which include the fees Ocado earns from Morrisons, increased 15.4 percent to 314 million pounds.

Tatton-Brown highlighted a 19 percent increase in average orders per week to 226,000 in the period, Ocado's best performance in over five years, as evidence the launch of Amazon Fresh in June had not hurt its business.

Analysts see winning international agreements with retailers in north America and western Europe as the key influence on Ocado's stock market valuation. However, the company missed its target of securing a deal by the end of 2015 and is still to announce one.

"There’s no change to our view on that," said Tatton-Brown. "We’re still confident that we’ll sign multiple deals in the medium term."

(Editing by Kate Holton and Mark Potter)

By James Davey