The Tesco (LSE:TSCO) stock price made a solid start to 2021, hitting 300p on the first day of trading before its February split. Today it is currently trading at around 236p, reporting a 21% decline in share price in the past six months. However, it is worth noting that most of this decline is due to the share split that occured in February this year.

Tesco is the UK’s largest supermarket chain. And has attracted a lot of attention since its competitor, Morrisons, received a takeover bid. Will Tesco follow in the footsteps of Morrisons? Let’s dig into the details.

The ripple effect on Tesco’s stock

The UK retail sector came on the radar when rumours about Morrisons’ buyout hit the market. When news about Morrisons accepting a takeover bid, hit the market, the whole retail sector soared. The ripple effect of the retail sector accelerated the growth rate of Tesco share. Consequently, Tesco stock rose by approximate 6% within one week. In my opinion, this staggering performance is noteworthy, considering the decline in Tesco stock since the stock split in February.

What makes Tesco an attractive buyout?

Tesco is a big name backed by strong financial performance. Rumours are looming in the retail industry about Tesco being the next buyout target. In my opinion, Tesco does look like it is one of those rare companies with an attractive balance sheet and good liquidity. And high liquidity tends to increase the odds of a buyout. Moreover, the company’s focus on future growth could make it a more lucrative investment.

But on the other hand, the huge market cap of £18bn is quite a significant price tag. And that hurdle gets even higher when taking into account the premium that needs to be offered to tempt shareholders into accepting any form of takeover deal. The massive investment limits the number of investors or firms who can actually consider Tesco as a prospective investment.

Exciting plans for future

Tesco is a firm believer in improving their customer’s experience every single day. Therefore, Tesco is rolling out check-out free stores in few districts of the country. This idea has been launched in competition with Amazon‘s Just Walk Out stores. Since there is a lot of room for growth in the retail sector, I believe this feature will take Tesco stock to new highs.

In addition, it’s management team has set out plans, stretching until 2025, to help their customers make healthy eating choices. The strategy behind this plan will be to reformulate products, offer affordable plant-based foods and inspire customers to make healthy changes to their diet with the launch of new product lines.

Tesco has a good history of receiving excellent customer responses. Being the preferred retailer of the country, these changes will further up the status of Tesco and push its stock price even further. At least, that’s what I think.

Challenges

The grocery retail industry of the country is enormous. With virtually no barriers to entry, the challenges in the sector are never-ending. Amazon is leading the sector which adapted quickly to the change in shopping habits of consumers. The challenge for Tesco is will it be able to beat Amazon? Only time can tell.

Also, the recent news of selling out to date food to customers has damaged Tesco’s reputation. Not to forget the £7.56m fine the retailer had to pay. With challenges increasing and Tesco’s name out in the market as a ‘lucrative buyout’, I believe the retail giant needs to carefully tread to maintain its status quo along with stock growth.

Conclusion about Tesco’s stock

Tesco is a massive name in the retail industry of the UK. Its continuous struggle in the face of challenges and investment in future enables the retailer to maintain solid grounds within the industry. So, even if it isn’t boughtout, I believe Tesco’s stock price, in my opinion, is an attractive investment with great potential for growth in future. Therefore I am considering to add it to my portfolio.

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