Tesco (LSE: TSCO) remains a heavyweight in the FTSE 100 and has delivered strong returns for its investors in recent years.
With the share price hovering just shy of a 52-week high as I write on 16 June, I wonder if there’s still value in the supermarket stock as we near the halfway point of 2025.
What’s happening to the price?
Tesco shares have climbed steadily in 2025, gaining over 25% since 10 April to sit at £3.95 per share right now. That means the company’s valuation has gained an impressive 28.7% over the past 12 months and outpaced the broader Footsie index by 20%.
The company recently reported an adjusted operating profit of £3.13bn for the year ending February 2025, up from £2.83bn the previous year. That profitability was underpinned by a 4% increase in sales as higher volumes and a stronger category mix helped to boost revenue.
Free cash flow came in at a healthy £1.75bn, reflecting strong operational performance and underpinning the company’s dividend (more on that below).
One thing I really like about Tesco is its ability to adapt and protect market share in the fiercely competitive grocery sector. Despite low-cost entrants snapping at its heels, the company has utilised initiatives like its Clubcard loyalty scheme and Aldi Price Match to great effect.
Valuation
Tesco currently trades on a trailing price-to-earnings (P/E) ratio of around 17, which is on par with the Footsie average.
I also like that the stock has a respectable dividend yield, using some of that strong free cash flow generation to pay investors 3.5% a year. That also leaves it in line with the Footsie average, but what about its peers?
By comparison, J Sainsbury shares trade on a P/E of 16.1 and offer a higher dividend yield of 4.6% at the time of writing. Of course, there are other factors at play aside from just a couple of metrics.
Tesco does typically hold a higher consistent market share of around 27% compared to 15% for its rival grocer. Given both companies’ current valuations, I don’t think Tesco is a poor option by any means for dividend investors.
However, the numbers do point to Sainsbury’s having the edge, which make it harder to justify naming Tesco as the value pick within the sector.
My verdict
I think Tesco’s strong cash generation, market-leading position and consistent dividend make it one worth considering for income-focused investors. However, personally I lean slightly towards Sainsbury’s as being better value to think about right now.
There are plenty of risks when investing in either of these stocks. Competitive pressures in the UK grocery market are incredibly high, while ongoing issues in terms of trade and supply chains can threaten earnings and margins.
Yet overall, despite my view of Sainsbury’s, I still think Tesco offer reasonable value as a non-cyclical stock within the FTSE 100 and may be worth considering, although investors have to weigh it up in the context of their own portfolios.
