Tesco (LSE: TSCO) shares have had a stunning run. The UK’s biggest grocer has been behaving more like a whizzy penny stock than a venerable FTSE 100 blue chip. What’s going on?
A lot of things have gone right. Tesco has tightened its grip on the UK grocery market, using its scale to keep prices competitive while protecting margins. Its Clubcard scheme has been a masterstroke, locking in customer loyalty and driving repeat spending. The group has also sharpened operations, cut costs, and gone back to basics by focusing on core food retail. Full-year 2025 results showed solid sales growth and strong cash generation, giving it the firepower to invest and reward shareholders. In short, it’s delivering the goods in a tough market.
Stunning FTSE 100 stock
Incredibly, the shares have stayed resilient during recent stock market volatility, and actually climbed 7% in the last week. That means someone who invested £10,000 just seven days ago would now have £10,700, a tidy £700 gain before trading costs.
At The Motley Fool, we don’t judge success over such a short spell. Thankfully, Tesco has delivered over longer periods too. Its shares are up 47% over one year and almost 115% over five. Dividends are on top, and for much of that time the yield topped 4%.
The income is somewhat slimmer today, with the trailing yield at 2.8%. That’s largely because the share price has done so well. Tesco raised its 2024 total dividend by 11% to 12.1p, then lifted the 2025 payout by a further 13.2% to 13.7p. Investors are sharing in the success. The question is whether it can last.
There are risks. Rising oil prices and supply chain shocks could push inflation higher again, squeezing shoppers and making them feel poorer. Grocery retail is already fiercely competitive, with price wars a constant feature as supermarkets battle for market share.
Costs are rising too. Tesco employs more than 300,000 people in the UK, so recent increases to employer National Insurance and the minimum wage will bite. Energy, logistics, and supplier costs remain volatile, threatening to squeeze already tight margins. There’s the ongoing threat from discounters Aldi and Lidl, which continue to nibble away at market share. Wholesale subsidiary Booker has been floundering.
This stock keeps delivering
I’m struggling to see how this pace of growth can continue indefinitely. The shares now trade on a price-to-earnings ratio of 17.6, which is no longer cheap. Unless the Iran war ends quickly, the UK is heading for a bumpy time. Then again, Tesco might be better placed than most. Its sheer size gives it serious buying power, helping it secure better terms from suppliers and hold prices down. That could prove invaluable as the cost-of-living squeeze returns with a vengeance.
Maybe that’s why investors keep piling in. Tesco has become something of a defensive play, but with genuine growth prospects too. Normally, I’d be wary of buying after such a strong run. But given how central Tesco is to everyday Britons, I think it’s still worth considering at today’s price. And it could look even more tempting if markets dip.
