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The Tesco share price and its roller coaster year: would I buy?

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Tesco (LSE:TSCO), one of Britain’s top five supermarkets, has had mixed success in 2020. In fact, it’s been a tumultuous year for the Tesco share price and long-suffering shareholders. As the world realised the pandemic was approaching in March and investors went into panic mode, the share price crashed. Panicked shoppers scrambled to stockpile toilet roll and disinfectant. But supermarkets were ill prepared for Covid-19’s arrival and quickly found their shelves cleared out of many of the important necessities of life.

The Tesco share price ups and downs

Nevertheless, Tesco’s revenues rose, and it was able to rapidly adapt to the new normal. Having a tech-savvy management team and advanced infrastructure in place definitely helped it stay ahead of the game. Unfortunately, 2020 has still been nothing short of a rollercoaster ride for the Tesco share price.

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During this period the share price rose and fell but was, at least, in a gradual upward trajectory through to May. But then it began a volatile descent. Sadly, by July the price had dropped lower than its March market crash bottom. The trouble was, while revenues were rising, so were costs.

What’s the damage?

The rise in working and educating at home meant consumers were spending more on groceries. But simultaneously, Tesco had to spend more to ensure it could meet these new consumer needs while maintaining a safe environment. So, to accommodate safe working practices for employees and customers, it had to implement costly health and safety measures. It had to invest heavily in PPE, enhanced cleanliness measures and additional training.

Tesco also incurred massive costs in employing additional staff and increasing its capability to offer home-deliveries on a bigger scale. This is all great for business in the long term, but short term, it caused uncertainty and a big financial outlay. This reflected badly on the share price.

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Tesco shares hit a lower low

At the end of October, the Tesco share price went even lower than its March and July lows. This was another blow to long-term holders. It may have partly been caused by a supermarket price war ramping up in preparation for Christmas spending. Tesco began price-matching discount supermarket Aldi in June and this has snowballed as rivals attempt to do the same.

But then the shares rallied again, and during the first three weeks of November rose 16%.

If I owned any (which I don’t), would I buy, hold or sell Tesco shares today? Considering its position of strength in the UK and its reasonable dividend yield of around 4%, I’d definitely buy. Despite its rollercoaster nature, I think it will survive the turmoil and once vaccines are in widespread use, Tesco’s share price will stabilise.

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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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