Tesco (LSE: TSCO) shares have had a brilliant run, climbing 70% in the last three years. It’s a great example of how even big blue-chip stocks can deliver stellar short-term growth, although these things tend to come in waves.
Yet lately I’ve been sounding the alarm, warning that investors in Tesco may have had their fun for now. And last week, the crunch came. The share price fell. Should investors brace ourselves for further losses, or is this a brilliant opportunity to buy more shares at the lower price?
FTSE 100 sector winner
In December, in fact on Christmas Day itself, when millions of households were tucking into Tesco-bought turkey and trimmings, The Motley Fool published one of my articles asking whether the FTSE 100 star could continue to shine.
My conclusion? “I suspect Tesco may struggle to maintain its momentum in 2026.” My reasoning? I was worried about rising unemployment, which may squeeze shoppers, or even the possibility of a UK recession.
I also noted that Tesco’s price-to-earnings (P/E) ratio had climbed to 16.6, which isn’t that expensive, but not as cheap as it was. I also felt that after a strong run momentum may slow. That’s because “last year’s winners can quickly become next year’s losers as expectations rise, growth slows and yields are squeezed”. Prescient? Moi?
Last Thursday (8 January), Tesco reported a slowdown in underlying sales growth over Christmas. Sales still rose 2.4% over the six weeks to 3 January, but that was down from 3.1% in Q3 and 4.6% in Q2. The trend isn’t Tesco’s friend. Its shares plunged 5% on the day.
These results weren’t a disaster. In fact, Tesco increased its festive market share to 29.4%, the highest in a decade. It’s still on course to post annual adjusted operating profit at the upper end of its guidance range, between £2.9bn and £3.1bn. Unfortunately, it was dragged down by wholesale distribution business Booker where sales fell, by 1.3%.
A slightly expensive stock
I wasn’t the only one worrying about that Tesco valuation. Chris Beauchamp, chief market analyst at IG, noted that Tesco’s share price looked expensive after a great 2025, concluding that: “Investors have been given a reason to sell and await a better set of figures.”
The shares are down 6.06% over the past week. That would have reduced a £10,000 investment to £9,394, a loss of £606. But it’s only a paper loss. I wouldn’t expect investors to sell after this minor stumble. Investing is a long-term game and the Tesco share price is still up 13% over the past 12 months. The trailing dividend yield of 3.3% lifts the total return beyond 15%.
The shares are a little cheaper, with the P/E now 15.2. It’s hardly a blazing buying opportunity, but investors looking to take a long-term position in Tesco might consider taking advantage.
Tesco may now be coming to the end of its recovery arc, so future share price growth may slow. Investors should bear that in mind. Those wanting faster growth or higher dividends will find it elsewhere on the FTSE 100. And that’s where I’ll be looking.
