The Tesco (LSE: TSCO) share price did it again in February. It jumped almost 14.5%, more than double the return of the FTSE 100, which was also rather splendid at 7%. Tesco shares are now up 27% over 12 months and 115% over five years. Can they maintain this momentum?
The grocery giant has roared back after losing its way under former CEO Philip Clarke, who stepped down in 2014. Successor Dave Lewis cut costs, sold non-core assets, simplified operations and rebuilt customer trust.
Core FTSE 100 holding
Current CEO Ken Murphy has built on that. He’s sharpened Tesco’s value proposition, invested in own-brand ranges and strengthened its online and convenience offering. Some 23m of us now hold the Clubcard, boosting customer loyalty and sales, and handing it valuable data for personalised marketing, discounts and tailored offers. Tesco is once again the clear leader in a fiercely competitive sector.
Its market share now stands at 28.7%, comfortably ahead of second-placed Sainsbury’s at 16.2%. Aldi and Lidl are still menacing, but know their place.
Tesco increased its market share over Christmas week to 29.4%, its highest in more than a decade. Fresh food did particularly well, but group sales have slowed since, with wholesale venture Booker struggling. Tesco now expects 2026 adjusted operating profit to land at the top end of its £2.9bn-£3.1bn guidance range. In 2025, it was £3.1bn. So that’s a bit disappointing.
Investors don’t seem to mind. They love Tesco right now. The price-to-earnings ratio has hit 17.5. That’s not nosebleed territory, but for a supermarket that has to fight tooth and nail to defend wafer-thin margins of around 4%, it’s a little demanding.
Costs remain a challenge. Tesco is the UK’s biggest private sector employer and must absorb higher employer National Insurance contributions and two sizeable increases in the National Living Wage. Easing food price inflation should help shoppers and margins, but the UK economy is still fragile. Rising unemployment could hit spending power too.
Price war risk
There are other challenges. The discounters aren’t going away. Price wars can flare up at any time. Middle East worries could drive up oil prices and inflation.
I’ve been looking at broker forecasts, and they’re underwhelming. The consensus 12-month price target is now 479p, a penny below today’s 480p.
Of course, forecasts should always be taken with a pinch of salt. No analyst has a crystal ball, however well paid. Also, most of those prices will have been set before the February share price jump. But it does reflect my suspicion that after such a strong run, Tesco shares may find it harder from here. The trailing yield has dipped to 2.75%, so there’s less income on offer for new investors.
I still think Tesco’s worth considering with a long-term view. It’s a high-quality operator in a dominant position. But the excitement may fade. Share price performance can be cyclical, especially in the consumer sector. Fortunately, investors can still find plenty of other FTSE 100 stocks on cheaper valuations and, potentially, with stronger dividend and growth prospects too.
