What’s next for the Ocado share price in 2022?

Rupert Hargreaves explains why he thinks the outlook for the Ocado share price has improved dramatically over the past six months.

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The Ocado (LSE: OCDO) share price was one of the big winners of the pandemic. Unfortunately, it has been unable to sustain the performance achieved in 2020, when the stock returned nearly 100%.

But last year, shares in the online supermarket group lost a third of their value. Following this performance, the Ocado share price has only returned 30%, a relatively disappointing performance considering its growth over the past couple of years. 

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However, it appears as if the outlook for the group is improving. Not only is the company continuing to capitalise on rising demand for its services in the UK and around the world, but it is also making progress in a vital legal battle in the United States. 

Legal progress 

The company has been caught up in a legal spat with Norwegian rival AutoStore. The Norwegian corporation accused its UK peer of infringing its patents for automated processes in fulfilment centres. 

But now, the International Trade Commission has concluded that most AutoStore’s legal claims are spurious. This ruling is not legally binding, but it does mean Ocado will have the upper hand in any further legal battles. 

This has removed a significant dark cloud from over the Ocado share price. If there is something the market hates more than anything it is uncertainty. Doubts surrounding the future of the company’s technology was one of the main reasons investors gave the business a wide berth last year. It now looks as if this risk is starting to recede. 

At the same time, it seems that the company is well-placed to continue its growth in the UK grocery market in 2022. Despite some disruption at its automated fulfilment centres, customer order numbers each week were up 9% in the 13 weeks to 28 November. A 22% rise in active customer numbers is helping support this growth. 

Ocado share price growth 

Research from the company shows that when customers migrate to its platform, they tend to stay. As such, I am optimistic the increase in active customer numbers will translate into further revenue growth this year. 

Management is not waiting around for customers. The company is investing £50m more than expected in new facilities. It expects mid-teens sales growth in 2022 as it opens a new automated warehouse in Bicester, Oxfordshire. 

Considering all of the above, I think the outlook for the Ocado share price in 2022 is exciting. However, I will be keeping an eye out for a couple of risks. These include rising costs and inflationary pressures, which could impact customer demand.

The corporation may also have to spend more than expected developing new facilities, which could hold back profit growth. If these facilities do not produce the sort of returns management is looking for, the market could begin to punish the stock for wasting money. 

Still, despite these risks, I would be happy to buy the shares from my portfolio today, considering the company’s outlook.

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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.

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