There’s been nothing boring about the Tesco (LSE: TSCO) share price lately. Any investor who added it to their portfolio hoping for quiet, steady compounding will have had their socks blown off.
Shares in the UK’s biggest grocer, and one of its most dependable blue-chips, have surged almost 75% in the last three years. Add dividends on top, with the yield touching 4% at times, and the total return is heading towards 90%. Which is pretty exciting, in my view (maybe I should get out more).
But share price momentum tends to be cyclical, and I’m starting to wonder whether Tesco is drifting from the exciting phase into a quieter, possibly bumpier one. The signs are there. The shares are still up almost 14% over the past year, but that lags the FTSE 100’s roughly 20% return, and more recently they’ve been sliding.
FTSE 100 excitement
With a price-to-earnings ratio now above 15, Tesco no longer looks cheap. Its dividend yield of around 3.2% is only a touch above the FTSE 100 average of 3.1%. On paper, it’s starting to look very average. Maybe even boring.
Christmas trading was solid rather than spectacular. Underlying UK sales growth slowed to 3.2% over the festive period, down from 3.9% in the previous quarter. Fresh food did better, while online sales grew by double-digits, but home and clothing lagged, and wholesale distribution operation Booker suffered a modest sales decline.
Still, there was nothing dull about one key number. Tesco increased its UK market share to 29.4% over Christmas, the highest level in more than a decade. That’s a serious achievement, especially given how aggressively Aldi and Lidl were eating into its turf not so long ago. Boring? That’s whizzy.
Tight margins, fierce competition
Tesco has also weathered the latest supermarket price war, sparked by Asda’s attempt to claw back market share, even at the expense of margins. Competition remains fierce and the cost-of-living crisis hasn’t helped, but Tesco continues to look resilient.
So here’s the real question bugging me. I don’t own Tesco shares, which means I’ve missed on all the recent fun. After such a strong period, does it offer enough excitement to be worth considering today?
I’ve been asking the same thing about plenty of FTSE 100 stocks after a bumper year, and broker forecasts are noticeably more cautious than they were. Even so, the 12 analysts covering Tesco have a consensus one-year share price target of 478p. That’s almost 12.5% above today’s 425p. Add a forecast yield of around 3.4% and the total forward return would be 15.9%. That would turn £10,000 into £11,590 if correct. Remember, these are only forecasts. A surprise dip in sales or wider stock market volatility could change the picture in a moment.
That forecast 12-month return isn’t spectacular, but it’s hardly dull either. If the cost-of-living squeeze continues to ease, shoppers should have more to spend. Tesco may not deliver fireworks from here, but as a long-term buy-and-hold, it still looks worth considering. Boring has its place too.
