Will Tesco shares continue soaring in 2025?

Holders of Tesco shares will be hoping for a repeat of 2024’s performance in 2025. Paul Summers wonders if they might be disappointed.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Tesco plc

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Tesco (LSE: TSCO) shares have been in fine fettle in 2024, easily out-performing the FTSE 100 index. But why have they done so well? And what might 2025 hold for our biggest supermarket?

Great year

As I type, anyone investing at the start of the year would be up around 25%. That’s on par with the S&P 500 across the pond, replete with all its tech titans.

Much of this lovely return can be attributed to the company successfully taking the fight to upmarket rivals such as Waitrose via its Finest range of foods while also price-matching products with German budget operators Aldi and Lidl. A recent ruling by the competition regulator that loyalty schemes, including its Clubcard, provide genuine savings to customers also boosted sentiment.

Should you invest £1,000 in Nvidia right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool 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 Nvidia made the list?

See the 6 stocks

But Tesco’s actually been doing well for a while now. Anyone buying in when UK inflation peaked at 11.1% in October 2022 (and the share price was languishing at 200p) would be looking at a stunning gain of 83%.

Created with Highcharts 11.4.3Tesco Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Can this carry on?

One reason why Tesco’s purple patch might continue into 2025 is incredibly simple. Regardless of the state of the economy, we all need to eat. With its 28.1% grocery market share, one could argue that the £25bn cap business remains a brilliant defensive bet. Closest rival Sainsbury‘s share is just 15.9%.

As things stand, analysts believe earnings per share will rise around 8%. That’s not exactly eye-watering growth. But I fancy quite a few UK businesses would settle for this.

Management’s decision to sell its banking operation to Barclays is another positive move, allowing management to focus its efforts on driving the retail business forward. As it happens, the aforementioned buyer recently raised its price target on Tesco to 415p –13% higher than where it currently stands.

Why might the shares come unstuck?

Tesco shares already change hands at a price-to-earnings (P/E) ratio of 14. That’s not all that different from the average among UK stocks. But it is a little expensive for a ‘consumer defensive’ stock with low operating margins and a fair dollop of debt on its books.

The forecast dividend yield also stands at 3.6%. This is very close to what I might expect from just holding a FTSE 100 tracker. So an investor won’t receive much more passive income, despite taking on the extra risk that comes with holding stock in a single company.

Those bi-annual payouts can’t be guaranteed either. Let’s not forget that Tesco cancelled dividends completely in 2015 after a nasty accounting scandal. Investors didn’t begin receiving cash again until November 2017!

There are other things worth noting. As a huge employer, Tesco will have to make higher National Insurance contributions from April following Chancellor Rachel Reeves’s first Budget back in October.

All this before we’ve contemplated what might happen if inflation bounces higher than expected.

Grocery king

I’d be surprised if this company manages to replicate its 2024 performance in 2025. But a more Foolish question to ask is whether investors should still consider buying as part of a diversified portfolio for the long term.

I can’t see much to suggest it’s about to lose its crown. So, I’d say the Tesco shares still warrant attention.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Nvidia right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool 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 Nvidia made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc, J Sainsbury Plc, and Tesco Plc. 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.

More on Investing Articles

Investing Articles

2 FTSE 100 and FTSE 250 stocks to consider as stock markets plummet!

Looking for lifeboats as growth-crushing trade tariffs loom? Here are two (including a FTSE 100 gold stock) I think merit…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Watches of Switzerland shares 1 year ago is now worth…

Watches of Switzerland shares have been decimated by Trump’s tariffs on Switzerland. Dr James Fox explores whether this is an…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Growth stocks are crashing! Here’s what I’m doing now

Our writer shares his thoughts as growth stocks get crushed, as well as a favourite from the Nasdaq that he…

Read more »

Investing Articles

What’s going on with the Nvidia share price now?

The Nvidia share price is tanking. Once the most valuable listed company, Nvidia has seen more than $1trn wiped off…

Read more »

Investing Articles

This FTSE AIM stock has £2.3bn in net cash, and a market cap of £2.4bn!

I love this FTSE AIM stock, but it really hasn’t delivered for me yet. The stock trades with crazily low…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Down 15% in a week! Are these 5 FTSE 100 fallers screaming buys as markets plunge?

Five of Harvey Jones's favourite FTSE 100 stocks all have the same thing in common – they've fallen around 15%…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

2 stocks that have been crushed and now offer a ton of value

Edward Sheldon has been scanning the market for stocks that offer value after the sell-off. Here are two shares he…

Read more »