Tesco (LSE:TSCO) shares have been rallying hard over the past year. Even though other FTSE 100 names such as Rolls-Royce have been stealing the limelight, Tesco is getting more attention from retail investors recently. With us shortly heading into autumn, here’s how my investment would be looking if I’d snapped up some of the stock at the beginning of the year.
Sitting pretty
At the start of 2024, Tesco shares opened at 290p. This contrasts to the current price of 340p. As a result, my £1,000 would currently be worth £1,172. This is a decent gain considering that we’re talking about buying the stock less than nine months ago.
Over the past year, the stock is up 36%, showing that the performance this year isn’t just a flash in the pan.
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Taking a step back, Tesco has indeed outperformed. For example, the FTSE 100 is up 7.4% in 2024. As for competitors, J Sainsbury is actually down 6%!
Reasons for the gains
Tesco has benefitted both from specific company factors and also from the broader landscape. One big help has been the reduction in inflation over the course of the year. Even though the latest reading earlier this week showed July inflation ticking up to 2.2% from 2% previously, it’s still a marked improvement from last winter.
As a result, it eases pressure on profit margins for Tesco. Further, with consumers having less pressure on their finances, demand for goods from the supermarket has also increased.
The business posted a strong set of 2023 results. Revenue jumped by 68% versus the previous year and thanks (in part) to a jump in statutory operating profit, the firm was able to pay down net debt by £729m. This puts it in a strong position going forward, something that I’m sure investors have noted.
Those looking for dividends have also been happy, with the company increasing the dividend per share from last year. Using the current figure of 12.10p, the dividend yield of 3.55% is at the FTSE 100 average.
No business is perfect. For Tesco, an ongoing risk remains stiff competition. Price wars are common in the sector, as other supermarkets compete to steal market share.
Looking forward
I didn’t buy Tesco stock at the start of the year, much as I wish I had. Given the share price jump, the price-to-earnings ratio now sits at 14.39. Although this isn’t crazily overvalued, it’s above the benchmark figure of 10 that I use to assign a fair value.
On that basis, I’m going to add the company to my watchlist. Should we see a short-term move lower in the coming months, it’s definitely a stock that I’d be keen to pick up at a cheaper level.
