Would I buy Ocado stock after its 30% fall?

The Ocado share price made gains earlier today on robust results. Can it keep rising, though?

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The answer is yes, I would buy Ocado (LSE: OCDO) stock after its 30% fall. Ocado has seen a share price tumble of 30% since the all-time highs it touched last year. But its performance is strong. It is exactly this disconnect that convinces me to buy this FTSE 100 stock.

Let me explain in some detail. 

Ocado share price fluctuations

The Ocado share price ran up fast during the pandemic as grocery deliveries were a far safer and more convenient option than making trips to stores. By late September 2020, it had touched its highest ever levels. 

It was unable to sustain these levels, however, as the stock market rally put the focus once again on shares effected by the coronavirus. But as the UK went into another lockdown, it rose back to its highs only to fall once more as optimism set in.

But here is the catch.

Strengthening fundamentals 

I do not think that Ocado’s pandemic growth spurt was a flash in the pan. It is quite likely that the pandemic has changed consumer behaviour forever. It has certainly changed mine. I am a convert to grocery deliveries, and will not revert to in-store purchases. 

I reckon this is true for other consumers too. Which is why, for the half-year ending May 2021, Ocado reported strong performance “even as Covid-19 restrictions ease”. Its revenue is up 21.4%, its net loss has almost halved, cash has increased, and debt has reduced too. 

More growth can be expected going by its on the ground expansion. In 2021 so far, it has opened three customer fulfilment centres (CFCs), where customer orders are processed. One of them is in the UK while the other two are US-based. Further, it says that the “momentum of CFC openings is building”.

It has also entered into a new partnership with France’s Auchan Retail, to develop its online business in Spain. Moreover, its recent acquisitions are expected to spur its growth further too. 

As an investor, these developments convince me of Ocado’s value. 

A wait and some risks

That value could take a while to show up, though. Right now, the Ocado share price is back to around where it was a year ago. In other words, all the gains made during the pandemic have been wiped out. That can be disappointing. 

Also, supermarkets are a challenging business. There is always pressure on price, as Ocado’s partner in the UK, Marks & Spencer (M&S) has experienced in recent months. And if the retailer continues to struggle, it could impact Ocado too. 

Would I buy the Ocado share?

But I am more optimistic than not on the stock. Fast expansion means that it is less dependent on M&S for growth. Further, the pandemic has pivoted consumer behaviour in favour of online shopping. And strengthening financials means that it can withstand any potential uncertainties brought on by relaxations of restrictions.  

For me, Ocado is a long-term investment. And now is a good time for me to buy.

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.

Manika Premsingh owns shares of Ocado Group. 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.

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