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3 reasons I’d buy Ocado after its share price crash

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The Ocado (LSE: OCDO) share price saw a sharp crash on Thursday evening, making it the biggest FTSE 100 loser on the day. It gained a bit on Friday, but only just. This, to me, merits exploring whether the stock is still a good buy.

I’ve long been bullish on Ocado, and only see the plunge as a reason to buy more. In fact, I already did. 

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That said, I can totally see concerns other investors may have about the stock. Ocado has run up spectacularly through 2020, leaving investors wondering how long its rise can continue. 

Additionally, post-Brexit challenges may be on their mind too. Ocado’s CEO, Tim Steiner, recently told reporters that the company isn’t impacted as yet on this count, according to a Reuters report. But he did mention that fresh food required free-flowing ports from the country of origin to the UK. This remark takes on special significance at a time when ports are already getting congested

Yet, I see at least three reasons that firmly put the odds in favour of Ocado rather than than against it. 

#1. Promising financials

2020 has been a very good year for Ocado, as the lockdown pushed consumers to shop online. The grocer was well-placed to handle exactly this demand. This has shown up in both its sales and earnings numbers. It has just raised its forecast for earnings before interest, tax, depreciation, and amortisation (EBITDA) for the second time in two months as per a Reuters report. The number is now expected to be at £70mn for the year. 

I’d be worried about a run-up in its share price if its financials weren’t improving, but right now, I’m anything but that. 

#2. Temporary chaos only

Brexit, especially a no-deal Brexit, can slow down Ocado’s growth. Besides the potential for delayed fresh-food availability, it can reduce overall demand. 

Ocado has been lucky to see an increase in sales this year, even while many other companies have languished. The lockdown has ended during the festive season, which is also a great time for shopping. 

But come new year, the post-Brexit situation will make itself felt over and above everything else. I reckon that if there’s a deal, we won’t have insurmountable problems anyway.

Things may get awry for some time if there’s post-Brexit chaos however. Here too, I reckon it will be a matter of months before the issue is resolved. In other words, the pain for Ocado will be short-term in nature. 

#3. Ocado’s a strong long-term story

And we at the Motley Fool are most interested in long-term buys, which I think Ocado very much is. It’s in a fast-growing industry that will be the go-to way to shop in the years to come. Coronavirus has shown us how fast ‘creative destruction’ can take place in business.

I think we’ll only see more of this going forward, which will hold OCDO in good stead. 

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In fact, we think it could become as big… or even BIGGER than Shopify.

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Manika Premsingh owns shares of Ocado Group. The Motley Fool UK has no position in any of the shares mentioned. 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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