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The Tesco (LSE: TSCO) share price is up a fresh and fruity 80% in the last five years, with plenty of juicy dividends on top.
Tesco has also reasserted itself as the one to beat in the grocery sector. Its 28% market share is aisles ahead of second-placed Sainsbury’s at 15.3%, Worldpanel figures show. Yet here’s something less impressive.
Today’s price of 461p is still a fraction below the FTSE 100 stock’s all-time high of 489p, which it hit roughly 19 years ago in October 2007. Tesco shares crashed after the financial crisis, along with most of the stock market, and the road to recovery has been a long one.
How did the grocery chain recover?
Much of this reflects the short but troubled tenure of former boss Philip Clarke, who quit back in 2014, amid plunging profits and rising competition from Aldi and Lidl. Replacement Sir Dave Lewis, now at Diageo, swept up and the retailer is now in a sweet spot under Ken Murphy. So can he push the share price to £5 and beyond?
Tesco is steaming along nicely, driven by its relentless focus on price and service. Clubcard pricing has boosted customer loyalty, and lifted sales of its higher-margin ‘Finest’ range.
In 2025, full-year sales rose a solid 4.3% to £66.6bn, although underlying operating profit grew a slower pace of just 0.6% to £3.2bn, as higher inflation took its toll.
Tesco generates plenty of free cash (£2bn over the year), allowing it to reward investors with generous dividends and share buybacks. Its mighty operating scale gives it bargaining and pricing power, and it has scope to expand through its chain of convenience stores.
Yet the shares have idled lately, edging up just 8.8% in the last year. Tesco is starting to look fully valued. The price-to-earnings ratio has crept up to 15.75, while the trailing dividend yield has slipped to 3.14%. Could the future get stickier?
Tesco operates on incredibly thin margins and inflation will continue to squeeze them. The decision to buy wholesale subsidiary Booker in 2018 has backfired, as it’s been hit by the structural decline of the commercial tobacco market.
Let’s look at broker forecasts
There are challenges – but what do the experts say? The 13 analysts offering one-year share price forecasts produce a consensus target of 517p. If correct, that would see the shares climb 12.2% from today. With dividends on top, the total return would top a pretty decent 15%.
Of the 15 analysts giving stock ratings in the past three months, not a single one says Sell.
- Strong Buy: 8
- Buy: 4
- Hold: 3
- Sell: 0
- Strong Sell 0
That’s a pretty solid wall of support. I’m worried about the rising oil price, which will drive up costs and make shoppers feel poorer. I can’t see Tesco shares shooting the lights out, but I think they’re worth considering with a long-term view. Possibly a good stock to buy on a market dip. While we wait, I’ve got my eye on more exciting growth opportunities.
Should you invest £5,000 in Tesco Plc right now?
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Harvey Jones holds shares in Diageo.
This story originally appeared on Motley Fool
