After a tough 2022, I’d buy this FTSE 100 share

Gabriel McKeown identifies a FTSE 100 share that has struggled considerably in 2022, but would still be a good company to add to his portfolio.

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The FTSE 100 has had a tough time in 2022, with significant fluctuations throughout the year, and a drop of over 6% year to date. This has made it incredibly difficult for UK investors to decide where to put their money. Many of my favourite sectors have suffered intensely, making finding the right opportunity harder than in previous years.

Despite this, I have found a company that has experienced considerable falls in share price over the last three quarters, and now presents a good opportunity for investment, in my opinion.

The company I am referring to is Ocado Group (LSE: OCDO), one of the largest online-only grocers in the world. The business operates almost entirely in the United Kingdom and has two main business areas: Retail and Logistics Solutions.

It is fair to say that the group hasn’t had the best start to the year, as its share price is down 71.8% since the beginning of 2022. Furthermore, the share price is down almost 84% since its peak in 2022. This is not a hugely encouraging sign, although it may still present an opportunity to invest at levels that are considered undervalued.

Underlying fundamentals

When looking at the underlying fundamentals, it is clear that Ocado has struggled with consistent profitability since its inception. This is normally the case when rapid growth is the priority. The fact that turnover has been growing consistently year on year confirms this is likely the focus.

In addition, despite Ocado’s borrowing accelerating from pre-pandemic levels, this has been accompanied by rising levels of cash and equivalents, which has kept net borrowing at a more manageable level. Net asset value is now around 40% of market capitalisation, which is quite encouraging for a growth company.

Growth opportunity

Another factor to consider, which falls outside standard fundamental analysis, is the progress being made by logistic solutions. It is this area that focuses on Ocado’s unique approach to order fulfilment, utilising high-tech factories and robot packing to completely revolutionise the grocery processing experience.

I believe it is the potential within this area of the business that the market tends to overlook. Continued developments within its software and hardware offering could help drive growth forward. This could help Ocado exceed the levels of its competitors within the supermarket and grocery sector.

Despite this, it’s important not to ignore the reasons why the share has fallen out of favour with the market. The company has seen large falls in profit levels and margins, and if top-level growth starts to fall, this could be a problem.

Nonetheless, I believe this fall has presented a good opportunity. This could allow me to invest in a high-quality growth company at an attractive valuation. Therefore, I would add Ocado to my portfolio once I achieve the necessary liquidity.

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.

Gabriel McKeown 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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