The Ocado share price is sliding! Is it too late to buy the stock?

The Ocado share price has been sliding, but the firm’s underlying performance is improving, which could offer a buying opportunity.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Ocado (LSE: OCDO) share price has collapsed over the past few months. After hitting an all-time high of around 2,900p at the beginning of February, the stock has steadily traded lower.

It’s currently changing hands at around 1,900p, a decline of nearly 33%. Over the past 12 months, shares in the retail and technology group are down 3% overall. 

This price action seems to suggest the company’s time in the sun is over. But past performance should never be used as a guide to future potential.

The Ocado share price may be down 33% from its all-time high, but the business is in a stronger financial position than it’s ever been. In fact, over the past year, the company’s fortunes have changed completely.

A year of change 

After spending more than a decade developing its technology, Ocado’s hard work paid off last year when its robotic warehouses proved their worth in the pandemic. These helped its retail business grow substantially, while its competitors struggled to catch up.

For example, in the second quarter of 2020, Ocado enjoyed sales growth of 42%, bettering any major UK supermarket. Its market share also increased to 1.7%. 

Management believes last year helped cement Ocado’s position in the market. Earlier this year, CEO Tim Steiner said that after customers had placed between three to five orders with the group, they stayed with the firm. This implies last year’s customer growth wasn’t a one-off. The company should be able to build on this over the next few years

At the same time, the company may enjoy increased demand for its robotic warehouse technology. Throughout the pandemic, this technology showed that having robots rather than humans in warehouses was more efficient. 

Ocado share price risks 

Unfortunately, the company is fighting several potentially devastating lawsuits with AutoStore Technology. The latter argues that its rival has infringed some of its patents. AutoStore says it supplied Ocado with its technology as early as 2012. This technology forms the foundations on which the Ocado Smart Platform was built.

These lawsuits are threatening Ocado’s expansion plans in the UK and United States. They could also thwart its plans to sell automated warehouse technology around the world. This is probably the most prominent risk hanging over the stock right now. 

I think this is the primary reason why the Ocado share price has been sliding over the past few months. It seems to me that investors are becoming concerned about the potential fallout from these lawsuits. 

I think the market is right to be concerned, but I’m also impressed by the growth of the retail business. As such, I believe the Ocado share price looks attractive after recent declines. However, I’d only buy the stock as a speculative investment until there’s more clarity around the lawsuits.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves 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.

More on Investing Articles

Investing Articles

Up 75% in 5 years, I reckon this FTSE 250 still has lots to give!

Our writer explains why this FTSE 250 stock could still continue to provide growth and returns despite already being on…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 high-quality FTSE 250 stocks to consider buying

The FTSE 250 is home to some of the best investment opportunities out there. This Fool highlights two stocks for…

Read more »

Investing Articles

The Marks and Spencer share price dips! Is this my chance to buy?

Marks and Spencer was one of the hottest stocks on the market last year. With its share price falling in…

Read more »

Growth Shares

How low could the boohoo share price go?

Jon Smith explains why the enterprise value and the low risk of bankruptcy should help to prevent the boohoo share…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Down 23% in a year! Can the Diageo share price regain £30 in 2024?

This Fool UK writer is checking the charts to see if the Diageo share price can recover from the recent…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

I wouldn’t touch this FTSE 100 stalwart with a bargepole

Despite looking like a bargain on paper, this Fool is avoiding FTSE 100 constituent Vodafone at all costs. Here he…

Read more »

Investing Articles

I’m waiting for the Rolls-Royce share price to pull back before I buy

The Rolls-Royce share price has been the Footsie's best performer in the last year. But this Fool has no intention…

Read more »

Front view photo of a woman using digital tablet in London
Dividend Shares

2 dividend stocks to take me from £0 to £9.5k in second income

Jon Smith talks through some ideas with second income potential, including one stock that has a dividend yield above 10%…

Read more »