Are Tesco shares a good investment?

Tesco shares are up more than 20% in the last 12 months as the retailer recovers from the 2022 correction. But can this upward trend continue?

by | Last updated 26 Sep, 2023 | Consumer Staples

A young woman doing grocery shopping in a local supermarket

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Tesco Plc (LSE:TSCO) is an international chain of grocery stores based. One of the most compelling, profit-yielding factors of the business is its flexibility towards operations. At least, that’s what I think. This has enabled them to survive in the tough competing world of retail stores amidst names like Morrisons and J Sainsbury. Moreover, the recent transition towards decarbonisation has further alleviated their position in the investor community.

While the retail chain market stayed as competitive as ever, let’s explore the investment viability of Tesco shares for my portfolio.

Key Points

  • Tesco is working towards decarbonisation and running home deliveries with 500 electric vans.
  • Tesco has a UK market share of almost 27% in terms of sales.
  • Analysts currently have a buy stance on Tesco shares.

What does Tesco do?

Tesco Plc is a British multinational grocery and general merchandise retailer with a network of more than 300,000 stores. The retail store chain aims to serve customers with affordable, healthy, and sustainable food options.

The recent agreement with the UK media agency Omnicom Media Group is expected to provide the retail store chain with a full-funnel-connected commerce campaign with greater precision. And it could eventually lead to more investment opportunities through a focused lens.

How do the financials look?

In the year ending February 2023, the company delivered strong sales of £57,656m, with a 5.3% change from the previous year. This equals a UK market share of almost 27%. While this reflects a 0.4 basis point reduction from last year, it is still a healthy contribution to the overall UK retail store industry.

Earnings per share of 21.85p, along with a dividend of 10.9p, reflects their continued investment in great value and great quality for their customers and investors.

Net debt was broadly flat year-on-year, with strong cash generation funding over £1.6bn of shareholder returns in the form of share buybacks and dividends. The retail store generated £2,133m of retail free cash flow, including a net £468m working capital inflow. The reduction in cash flow by £144m is due to lower retail operating profits and higher levels of capital investment, offset by a reduction in cash tax.

The bull case for the Tesco share price

Tesco shares are currently trading near 269p. Since the start of 2023, that’s an approximate year-to-date appreciation of roughly 18%.

The company’s management is determined to provide reliably affordable yet healthy and sustainable food options to its customers. All this is delivered alongside the quality and convenience. I believe this is one of the primary factors that contributes to building a loyal customer base that contributes towards long-term growth. Moreover, the dedication of the management towards providing value to customers makes it stand out in my mind.

The bear case for the Tesco share price

The business of Tesco will likely always stay in demand. After all, people need to eat and drink. But rising inflation puts a lot of pressure on maintaining current and long-term growth. This, coupled with the less generous changes in the Tesco Club Card policy, has put further strain on future sales. No doubt, the continuance resilience has proven to be fruitful in terms of sales growth in 2023. However, the retail store chain needs a good strategic plan in action soon.

In addition, the switch of consumer preferences from less sustainable products to more sustainable options requires immediate remodelling of their product development and buying patterns. At least, that’s what I think.

Tesco share price predictions

The 12-month price targets for Tesco shares have a median target of 302p, with a high estimate of 330p and a low estimate of 235p. The majority of the analysts have a buy stance on the retail chain stock, as they believe it will outperform in the coming months.

Forecasts should always be taken with a pinch of salt. While they can be handy in getting a rough idea of what to expect, predictions are based on assumptions that may not come to pass. And with the UK economy still recovering from instability, a new spanner may be thrown in the works that could invalidate analyst expectations.

Should I buy Tesco shares today?

Tesco shares are no doubt a reliable investment option, in my mind. Despite the huge drop to the low of 200p in 2022, the stock has recovered remarkably till today. And that’s not entirely surprising given the firm has a long history of navigating periods of economic stress.

Moreover, the continued focus on improving customer experience and strategic changes within the company has enabled the company to stand out in the industry. Therefore, while I’m not expecting any spectacular growth, I believe right now is a good time to buy Tesco shares for my personal portfolio.

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Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.

Written By

Saima Naveed

Saima spent the early days of her career advancing the finance office of a prominent manufacturing business. After taking a sabbatical, she decided to use her expert knowledge and apply it to the stock market. Now, 10 years later, she manages a substantial portfolio built using detailed and thorough analysis.

Outside The Money Cog, Saima is an avid supporter of empowering women in the workplace. She is currently working very closely with Women of Wonders Pakistan to help other women achieve their career goals.

Current Holdings


Edited & Fact Checked By
Zaven Boyrazian MSc

Zaven has worked in several industries throughout his career, from aircraft factories to game development studios. He has been actively investing in the stock market for the better part of a decade, managing over $1 million across multiple portfolios.

Specializing in corporate valuation, Zaven employs a modern take on the principles set out by Benjamin Graham to find new opportunities at fair prices.

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