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The Tesco (LSE: TSCO) share price has done investors proud. It’s up 82% in the last five years, with dividends sprinkled on top. With all shareholder payouts reinvested, investors should have more than doubled their money.
I’m both impressed and surprised. About 15 years ago, Tesco seemed headed for world domination, but then the wheels came off. The disastrous US Fresh & Easy venture was eventually abandoned at a huge cost, while Tesco’s UK stores suffered from years of underinvestment.
Chief executive Philip Clarke then struggled to turn things around as Aldi and Lidl gained ground and Tesco was hit by profit warnings and an accounting scandal.
Successful recovery stock
Dave Lewis took the hot seat and began one of the great FTSE 100 turnarounds in 2014, rebuilding the stores, restoring competitiveness and tackling the accounting scandal. Ken Murphy took over in 2020 and has continued that progress. Its UK market share reached 28.5% in the year to February, the highest for more than a decade.
That’s particularly impressive given the challenges facing supermarkets. The cost-of-living crisis has squeezed shoppers, while the government’s National Insurance and Minimum Wage hikes pushed up Tesco’s staff costs.
Full-year 2025 results were solid. Sales rose 4.6% to £66.6bn and adjusted operating profit climbed 0.8% to £3.15bn. However, free cash flow fell 15.2% to £1.75bn and Tesco guided to adjusted operating profit of £2.7bn-£3bn. Which suggests recent rapid growth will be harder to maintain.
It’s been a tricky summer trading period
Now we’ve had another warning shot. Latest Worldpanel figures show it’s been a tough summer for all the supermarkets. I can’t say I’m surprised, as energy and food prices continue to rise, and we feel the squeeze all over again.
Tesco shares are slowing. They’re up a modest 9.5% over the last 12 months. They’re looking a little more expensive too, with a trailing price-to-earnings ratio now around 16.3. At the same time, the trailing yield has fallen to just 3%. The slowdown might just be arriving.
Analysts remain positive
So what do the experts say? The 13 analysts offering one-year share price forecasts produce a consensus target of 516p. If correct, that would see the shares climb a modest 7.2% from today’s 482p.
Of the 15 analysts giving stock ratings in the past three months, most remain positive:
- Strong Buy: 8
- Buy: 4
- Hold: 3
- Sell: 0
- Strong Sell: 0
So 12 out of 15 are still very positive about Tesco, while none would sell. They’re a bit more optimistic than I am. The next year’s shaping up to be a tough one for the UK.
I still think Tesco’s worth considering as a solid long-term buy-and-hold stock. I just can’t get too excited given today’s valuation and the challenges ahead. It might be the type of stock I’d rather buy in a dip, giving me a lower P/E and higher starting yield.
When I look around, I can see a more exciting FTSE 100 growth stock that I might prefer instead…
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Harvey Jones does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
