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

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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. 

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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.

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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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