Hasn’t the Tesco (LSE: TSCO) share price done well? It’s doubled in the last five years, rising 104% to be precise. With reinvested dividends, the total return must be somewhere towards 125%. That’s not too shabby.
Tesco has reasserted its UK grocery dominance with a thumping 28.2% market share. At 15.2%, second-placed Sainsbury’s simply can’t close the gap.
That dominance gives Tesco clout. It can negotiate better prices with suppliers, spread costs across a huge sales base, and keep investing in stores, online shopping, and its massively successful Clubcard loyalty scheme.
Why is this FTSE 100 stock on top?
Tesco has also benefited from the steady hand of chief executive Ken Murphy. He’s kept the focus on value, sharpened the business, expanded Clubcard, and protected Tesco’s market leadership, all with German discounters Aldi and Lidl breathing down his neck.
Statutory pre-tax profits haven’t exactly boomed though:
- 2026 – £2.4bn
- 2025 – £2.2bn
- 2024 – £2.29bn
- 2023 – £882m
- 2022 – £2.03bn
It was a sticky time. In the 2022/23 financial year, the energy shock drove up energy and transport costs, while forcing Tesco to hike staff pay in line with the cost of living. Shoppers also returned to eating and drinking out after the pandemic, hitting in-store spending.
Government hikes to employers’ National Insurance in 2025 added £250m a year to the wage bill, with inflation-busting National Living Wage increases on top. Despite all that, Tesco has steadily grown profits and kept customers coming through the doors.
I can see three reasons why the shares could keep rising:
- Its market leadership gives it pricing power and resilience when conditions get tougher.
- Lower inflation could ease cost pressures and leave shoppers with more money to spend.
- Strong cash generation should continue to support dividends and share buybacks.
And three reasons why they might struggle:
- Fierce competition from Aldi, Lidl, and the other supermarkets could squeeze margins.
- Rising employment and operating costs could continue eating into profits.
- After such a strong run, investors may decide the shares already reflect most of the good news.
What does the next year hold in store?
The 13 analysts offering one-year share price forecasts produce a consensus target of 520p. If they’re right, the shares would climb 9.1% from today’s 477p.
Of the 15 analysts giving stock ratings in the past three months, most are positive:
- Strong Buy: 9
- Buy: 3
- Hold: 3
- Sell: 0
- Strong Sell: 0
There isn’t a single Sell recommendation. Tesco shares have recovered well from the Iran war shock, climbing 7.5% so far this year. But it’s more expensive than it used to be, with a forward price-to-earnings ratio of 15.8. The forecast yield for 2027 is 3.27%.
After such a strong run, Tesco looks fully valued to me. Trading could stay bumpy with household budgets squeezed , although any improvement in consumer spending should quickly feed through to sales and profits. I still think it’s worth considering as a long-term compounder but suspect the next year or two may be so-so. The analysts seem to agree.
Should you invest £5,000 in Tesco Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie 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 Tesco Plc made the list?
Harvey Jones does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
