What’s going on with the Tesco share price after the latest results?

The Tesco share price ticked upwards after reporting a jump in annual profits and volumes. Dr James Fox takes a closer look at the results.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Girl buying groceries in the supermarket with her father.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

On Wednesday (10 April), Tesco (LSE:TSCO) reported its annual earnings for the 52 weeks to 24 February. And with a strong set of results and a confident tone, the Tesco share price pushed up around 1% in early trading, rising further by mid-day.

Strong results

The UK’s biggest retailer said group sales excluding VAT and fuel rose 7.2% over the 52-week period to £61.48bn. Including fuel, sales rose 4.2% to £68.19bn. Meanwhile, adjusted diluted earnings per share came in at 23.41p — up 14% year on year.

On a like-for-like basis, the firm said that retail sales rose 6.8%. And with inflation falling throughout the year, the retailer had seen volume growth pick up in the second half.

Revenue came in exactly as expected, but earnings were seemingly a little bit light. Nevertheless, this was a strong set of results and the market reacted positively.

Confidence high

Reinforcing this strong set of results was the management’s confident tone. Ken Murphy, chief executive, said: “Customers are choosing to shop more at Tesco, which is reflected in growing market share as they respond to the improvements we’ve made to the value and quality of all our products.”

This broadly reinforces what I and several other analysts have been suggesting. With the cost-of-living crisis relaxing, shoppers are seemingly trading up from budget supermarkets to those that are a little more premium, like Tesco or Waitrose.

The latest data shows that real sales growth is slowing for the likes of Aldi and Lidl — Aldi’s sales growth is actually negative. Meanwhile, premium Waitrose has seen a huge improvement over the past 12 months, and this probably will continue as things pick up.

Source: Kantar via John Choong

Trading in line with peers

When I’m evaluating how much a stock should be worth, I often start by looking at existing research and share price targets. These are the published targets issued by City and Wall Street analysts and provide insights into the perceived value of the stock.

The average Tesco share price currently targets £3.29, representing a 14.5% premium to the current share price. UK stocks tend to trade at a discount to their targets, but this discount is clearly positive.

It’s also worth bearing in mind that analysts don’t always update their outlooks that frequently. The improving economic backdrop, as outlined by management in the above results, may be reflected in forthcoming revisions.

I’d also note that Tesco’s broadly trading in line with peers. It’s currently trading around 13 times earnings and has modest growth expectations. Based on forward earnings projections, the grocer is trading around 12.2 times for 2024, 11.8 times for 2025, and 11.2 times for 2026.

Personally, I believe Tesco’s among the strongest picks in this sector, given its commanding lead in the UK retail space. This gives it pricing power and the ability to swallow higher costs when challenges arise.

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.

James Fox has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco Plc. 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.

More on Investing Articles

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »