Up 6.3%, where will the Tesco share price go next?

The Tesco share price has been relatively steady of late, consolidating moderate gains over the past 12 months. Dr James Fox takes a closer look.

| 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.

Image source: Tesco plc

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.

The Tesco (LSE:TSCO) share price has broadly performed in line with the FTSE 100 over the past 12 months. It’s up 6.3% over the period, while the blue-chip index is up 5.9%. However, the big question is, where will it go next?

Created with Highcharts 11.4.3Tesco Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Holding market share

UK shoppers collectively saved £1.3bn on supermarket deals over a four-week period in March and April. This coincided with a 14th consecutive monthly fall in food inflation which, according to Kantar Worldpanel, had fallen to 3.2% during the same period.

Grocers were also feeling the pressure to respond to customers’ desire for deals. According to Kantar, 29.3% of supermarket sales came from promotional spending — the highest level outside of Christmas since June 2021.

Should you invest £1,000 in Vodafone right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Vodafone made the list?

See the 6 stocks

Britain’s largest grocers appear to be the beneficiaries of this trend, with Tesco and Sainsbury’s increasing their market shares by 0.4% over 12 weeks. Tesco currently holds 27.6% of the UK’s grocery market. That’s 12% ahead of Sainsbury’s — the UK’s second-largest grocer.

Market share data provides both positive and negative indicators for Tesco. It hasn’t lost much, if any, market share since low-cost Aldi and Lidl entered the UK market. However, Tesco isn’t as dominant as it once was in the sector. When Kantar records began in 2011, the supermarket chain had more than 30% of the market.

Solid performance

Tesco’s financial results for the year ending 24 February were impressive. Sales grew significantly, with group sales excluding VAT and fuel rising 7.2% to £61.48bn. Overall sales, including fuel (which has seen some deflationary pressure over the period), reached £68.19bn, reflecting a 4.2% increase. The company attributed this performance to its strong market share and growing customer traffic.

Benefitting from premiumisation

While inflation remains an issue for many people, Tesco indicated that more people are “eating in and entertaining in and then treating yourself”. It also appears likely that as the cost-of-living crisis fades, shoppers will return to more premium shopping destinations. We may not think of Tesco as premium, but it’s certainly more premium than Aldi and Lidl.

Outstanding value?

I’ve been fairly bullish on Tesco for some time, but never found an attractive entry point. However, I’m no longer convinced it’s the best value in the sector. Instead, my attention is moving towards Marks and Spencer.

Below, I’ve compared earnings per share (EPS) forecasts for the three main listed grocers, and I’ve provided the respective price-to-earnings (P/E) ratios for those years. As we can see, Marks and Spencer appears to come out on top, with lower P/E ratios and a stronger net debt position than its peers.

There’s a caveat, of course. Tesco has a dividend yield around 4%, Sainsbury’s 5%, and M&S, just 0.4%.

TescoEPSP/EM&SEPSP/ESainsbury’sEPSP/E
202423.912.423.910.71616.5
202525.411.725.210.220.512.9
202626.611.2279.521.812.2
Net debt£10.1bn£2.4bn£5.5bn

I certainly don’t see Tesco as a bad investment opportunity. It’s just not outstanding in its sector. It’s trading with attractive metrics, it’s benefitting from shifting market forces, and it has a dominant position in the market. Economies of scale are very useful in the grocery sector.

So where will it go next? I’m not sure it’ll push on much further unless its earnings figures really surprise us.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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 J Sainsbury Plc and 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Dividend Shares

Of the 20 highest-yielding FTSE 100 stocks, this is my top pick

This FTSE 100 stock currently offers a yield of 6.4%. But Edward Sheldon believes it’s capable of providing share price…

Read more »

Investing Articles

Could Tesla’s share price jump over the next 12 months? These analysts think so!

Tesla's share price has fallen by almost a third since 1 January. But optimism is high that Elon Musk's company…

Read more »

Investing Articles

I asked ChatGPT where the FTSE 100 will be in 6 months: here’s what it said…

Let’s be realistic, ChatGPT can’t predict the future. But it did do a good job of compiling data from brokerages…

Read more »

Investing Articles

Could the Rolls-Royce share price hit £10?

The Rolls-Royce share price has taken most analysts by surprise with almost everything going right for the British engineering giant.

Read more »

Investing Articles

4 REITs Fools own for passive income

REITs often have higher-than-average dividend yields compared to other stocks, making them a solid choice to consider for passive income…

Read more »

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »