MENU

Tesco PLC Is Cheap Right Now And I’m A Buyer

In every walk of life, people try to get away with whatever they can.

In the case of an employee, this is often to work as little as possible, while earning as much as possible. Similarly, in the case of a company, it is to extract as much cash from customers for providing as little service at the lowest cost possible.

Certainly, not all employees and companies can be painted with this brush, but from my experience there are a fair number that can.

Indeed, the culture to get away with whatever one can seems to be most prevalent in retail and, in particular, in supermarkets. Although I admit I am Foolish, I often find myself spending considerable time when in the supermarket trying to fathom which product is best value, with the supermarket’s pricing being very difficult to understand.

So, I was not surprised to read recently that Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) has been fined £300,000 for misleading pricing.

The item in question was a ‘half price’ punnet of strawberries, with a keen-eyed shopper in Birmingham rightly noticing that the punnet had spent only a week at its full price of £3.99 before being marked down to £1.99.

Consumer rules state that a discounted price is not allowed to be offered for a substantially longer period than the original price period.

Of course, the £300,000 fine still left Tesco with an estimated £2 million profit from the offer, so the company may well argue that the strawberry promotion was still worth it.

Of course, as well as being sharp on pricing, I also believe that Tesco is a sharp stock for investors. The company is well on-track to turn its fortunes around, with recent news flow including the progression of the sale of Fresh & Easy as well as the formation of a Chinese joint venture.

Furthermore, shares trade on a price to earnings (P/E) ratio of just 10.3, which compares very favourably to the FTSE 100 on 14.6 and to the wider consumer services industry group on 16.7.

In addition, Tesco currently yields 4% and has the potential to increase its dividends per share by implementing a more generous payout ratio. As the company continues to turn itself around and put the necessary steps in place for future growth, I would expect dividends per share to increase at a brisk pace.

Of course, a 4% yield is better than that offered by savings accounts and currently beats inflation. For income-seeking investors such as me, this payout is very welcome indeed.

If you already own Tesco and are looking for an additional income-seeking stock, I recommend you read this exclusive report entitled The Motley Fool’s Top Income Share For 2013.

The report is free and comes without obligation — simply click here to view a stock that may offer the boost your portfolio needs.

> Peter owns shares in Tesco. The Motley Fool owns shares in Tesco.