£15,000 invested in Tesco shares at the start of 2024 is now worth…

This writer takes a look at the performance of Tesco shares since the start of last year and considers whether he should invest in the supermarket giant.

| More on:

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 haven’t really set the world on fire over the past couple of decades. The group’s ambitious international expansion plans didn’t pan out as hoped while an accounting scandal in 2014 led to a dividend suspension and rocked investor confidence.

More recently though, there seems to have been a reassessment of the investment case. The FTSE 100 stock is up 81% from a low in October 2022.

Indeed, the share price is up 26.2% since just the beginning of 2024. This means anyone who invested £15,000 in the UK’s leading supermarket back then would now be sitting on £18,925. And they’d also have received around £635 in dividends, taking the total return to approximately £19,500.

That’s a very solid result in a relatively short space of time.

Still dominant

Every month, industry insights and trends are released from data provider Kantar. We got these earlier in January, just before Tesco released a Christmas trading update.

Together, they painted the same picture, which is that Tesco is performing very well. Over the 12 weeks to 29 December, it enjoyed 5% growth in sales across its convenience, superstore and online channels.

This saw its market share increase by 0.8%, the largest gain of any supermarket, taking its hold to 28.5%. That’s Tesco’s highest market share since 2016!

CEO Ken Murphy commented: “We delivered our biggest-ever Christmas, with continued market share growth and switching gains.”

Source: Kantar

Online opportunity and challenge

One potential risk for Tesco is online, where spending for December reached a record £1.6bn. According to Kantar, Ocado boosted its sales by 9.6% over the 12 weeks to 29 December, taking its overall market share to 1.8%.

Of course, Tesco has its own online business. This channel saw 10.8% growth in UK sales over the Christmas period, including over 1.2m orders placed through Tesco Whoosh, its rapid delivery service.

Meanwhile, the company leverages its extensive store network for click-and-collect services, which pureplay online grocers do not offer.

Unlike online-only Ocado though, Tesco must balance this opportunity with maintaining its physical operations. True, its massive scale gives it advantages when it comes to negotiating prices with suppliers. But Ocado uses robots to pick and pack orders efficiently, reducing costs and improving order accuracy.

The long-term aim is to translate these operational efficiencies into more competitive pricing for customers in order to take market share and (possibly) boost profit margins. If that happens, Tesco might one day feel compelled to invest heavily in automation technologies to remain competitive. And that could weigh on margins and investor sentiment for the stock.

Will I invest?

The forward-looking dividend yield is 4%, with the payout expected to be covered two times by forecast earnings. While no dividend is guaranteed, this reassuring coverage suggests to me that the payout should be met. Looking ahead, I do like the dividend growth prospects here.

However, a more immediate concern for me is the increase in costs related to the recent Budget. Due to Tesco’s massive workforce, this will add an extra £250m to its costs each year, according to management. Passing this on to customers through higher prices could result in lower overall basket sizes.

Therefore, I have no plans to invest in the stock right now.

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.

Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended 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

Young Caucasian woman with pink her studying from her laptop screen
Investing Articles

Time to buy Nvidia shares before fresh all-time highs?

Nvidia shares began 2025 at an all-time high before a big drop in the last week or two. Our writer…

Read more »

Investing Articles

A top FTSE 100 share to consider for a Stocks and Shares ISA starter portfolio!

While not without risk, a lump sum in this FTSE 100 trust could prove a great way for Stocks and…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

I asked ChatGPT to name the best 5 UK shares to build wealth over 50 – and here they are!

Harvey Jones is looking to build a balanced portfolio of UK shares to fund his final years, and asked ChatGPT…

Read more »

Investing Articles

£10k invested in Scottish Mortgage shares after the DeepSeek crash is now worth…

Harvey Jones thought his Scottish Mortgage shares were heading for a bumpy ride when DeepSeek emerged last month. Then he…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

1 ex-penny stock up nearly 400% in my Stocks and Shares ISA! 

This writer is starting to take notice of a small-cap stock that is 'up' significantly in his ISA portfolio over…

Read more »

Investing Articles

The FTSE 100 index hits new highs! But will Legal & General shares outperform it in 2025?

Legal & General's share price has rocketed almost 8% so far in 2025. Can it continue to outstrip the surging…

Read more »

Investing Articles

Up another 8% in a week! So what’s stopping me from buying IAG shares? 

Harvey Jones is desperate to add high-flying IAG shares to his portfolio before they climb even higher but there's a…

Read more »

Happy couple showing relief at news
Investing Articles

The Bank of England’s slashed its growth forecast but the FTSE 100 doesn’t seem to care!

On the day the UK’s central bank halved its forecast for growth in 2025, the FTSE 100 reached a record…

Read more »