The Ocado (LSE:OCDO) share price has had a disappointing year so far. Despite the firm making strides in further expanding its robotics logistical platform, the stock has fallen more than 40% since its January highs. What happened? And is this an opportunity for me to buy the shares at a discount? Let’s explore.
The Ocado share price burned down… literally
The initial decline in the share price started in late February after nearly reaching a new all-time high just a month before. Investor fears surrounding a slowdown in sales started brewing as the UK moved towards lifting all lockdown restrictions. With non-essential stores preparing to reopen and people happier to return to stores for their grocery shopping, the share price started to suffer.
However, while investors were right to fear a slowdown, in the event, it wasn’t triggered by a lack of shopping traffic to Ocado’s online supermarket. Instead, the cause was a fire at one of its warehouses. On 16 July, three robots in its Erith warehouse collided, which triggered an electrical fire.
The damage to the facility and robotic grid was minimal. But the incident caused severe disruptions to operations, resulting in an estimated 300,000 orders being cancelled. That roughly translates into £35m of lost sales. Consequently, revenue generated between July and August this year declined by just over 10%.
This isn’t the first time Ocado has had to deal with a fire. In 2019, its Andover warehouse burned down to the ground due to an electrical fault in a battery charging unit. Fortunately, the more recent incident was nowhere near as severe. But seeing the Ocado share price struggle as a consequence is hardly surprising.
An opportunity to buy?
Ignoring the adverse effects of the fire, the underlying business seems to be performing rather well. Average orders per week have increased by 22%. This appears to have been primarily driven by the continued growth of its customer base. In the latest quarter, Ocado attracted an additional 64,000 customers before the fire broke out. That’s a new record for customer acquisition. And it has subsequently brought the total to 805,000.
The company’s partnership with Marks & Spencer has proved lucrative, with 29% of products sold online being M&S branded. And on the robotics side of the business, Ocado continues to attract new clients with Spanish firm Alcampo being the latest addition. Needless to say, this is good news for the Ocado share price
The bottom line
As frustrating as the operational disruptions have been this year, they’re ultimately short-term problems. Before the fire came into the picture, Ocado was seeing double-digit sales growth. In my opinion, this performance indicates that it can continue thriving in a post-pandemic environment – something that many investors feared wouldn’t be possible. Therefore, to me, the fall in Ocado’s share price looks like a buying opportunity for my portfolio.
Zaven Boyrazian 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.