I admit that making predictions about the Tesco (LSE:TSCO) share price is a mug’s game. Nobody (including me) can know with any certainty at what level it might be in a few days’ time, let alone next month and beyond.
But I think it’s possible to make an informed judgement as to its future direction of travel. And I believe there’s some evidence to suggest that it’s unlikely to move much higher, certainly not in the short term.
Interestingly, it would appear as though the analysts agree with me. The consensus 12-month forecast of those covering the stock is for it to be 437.5p — 3.5% higher than it is today (1 September). And with a range of 380p-475p, the 12 ‘experts’ have relatively similar views.
Gaining market share
Despite facing fierce competition, the group’s market share has proven to be remarkably resilient in recent years.
When Aldi opened its first UK store in 1990, Tesco’s market share was 15.7%. In 1994, when Lidl entered the domestic market, it was 18.3%. Now, over three decades later, despite repeated warnings that the German discounters were going to change the face of the British grocery market, it’s 28.4%.
And over the past five years, it’s increased by nearly two percentage points.
| 12 weeks ended | GB market share (%) |
|---|---|
| 10.8.25 | 28.4 |
| 11.8.24 | 27.6 |
| 13.8.23 | 27.0 |
| 14.8.22 | 26.9 |
| 15.8.21 | 27.2 |
| 16.8.20 | 26.5 |
Admittedly, Aldi and Lidl have had some impact. Since 2020, their combined market share has increased from 14.3% to 19.1%. But their arrival seems to have damaged others more than it has Tesco.
A competitive landscape
The German grocers are private companies. But they’re still required to file accounts at Companies House. Aldi’s most recent financial statements show that the UK group made a profit of £348m on sales of £17.9bn in 2023. During the 52 weeks to 29 February 2024, Lidl reported turnover of £10.9bn and a post-tax profit of £34m.
Tesco’s most recent full-year accounts – for the 52 weeks ended 22 February (FY25) – disclosed revenue of £69.9bn and a profit after tax of £1.63bn. This tells me it has the necessary financial firepower to continue to withstand the threat of the Germans.
Future prospects
But a look at analysts’ forecasts of earnings per share (EPS) over the next three years reveals a mixed picture. In FY25, the group reported adjusted diluted EPS of 27.38p. For FY26, they’re expecting this to fall to 27.17p. However, this is forecast to increase to 30.4p (FY27) and 33.57p (FY28).
If they’re right, the group’s shares are currently trading at 12.6 times forward (FY28) earnings, which is roughly in line with where they’ve been over the past four years. It would therefore appear to me that the recent share price rally – it’s risen 19% over the past year – has already factored in the anticipated increase in EPS.
| Financial year | Adjusted diluted EPS (pence) | Share price (pence) | Price-to-earnings ratio |
|---|---|---|---|
| FY22 | 21.86 | 290 | 13.3 |
| FY23 | 20.53 | 255 | 12.4 |
| FY24 | 23.41 | 279 | 11.9 |
| FY25 | 27.38 | 380 | 13.9 |
Although it’s my favourite grocer, I can’t see the Tesco share price rising much more. And even though income investors might be attracted by a yield that’s pretty much in line with the FTSE 100 average, I think there are better opportunities elsewhere.
As an existing shareholder, I’m therefore seriously considering selling up and banking some of the profit I’ve made to free up cash for other long-term investments.
