The Tesco (LSE: TSCO) share price has grabbed headlines this year, and it’s easy to see why. In February, it briefly hit 500p, a level not seen in 15 years.
The high price comes after half a decade of impressive growth, with the shares climbing almost 110%. Not bad for a supermarket chain that many people consider a ‘steady’ income stock – rather than an exciting growth story.
For context, the last time Tesco was around 500p was in late 2011, back when the grocery sector looked very different. That was before the long grind of deflation, fierce discounting, and weak margins.
So where’s it heading?
Despite the notable milestone, Tesco shares have struggled to hold on to 500p. They’re now hovering around 485p, even after the upbeat preliminary results released last week (16 April).
Full‑year retail sales rose 4.3% to £66.6bn, which is better than I’d expect in a market where shoppers are still sensitive to prices. And free cash flow did even better, jumping 11.8% to about £2bn.
So it’s actually generating more cash than it did a year ago, despite global market wobbles. It also raised its full‑year dividend by 5.8% to 14.5p per share, further establishing its core appeal as an income stalwart. So why’s it struggling to regain 500p?
Conflict uncertainty
The main answer is risk, not results. Tesco has warned that the outlook for fiscal 2026/27 is uncertain, in part because of the Middle East conflict linked to Iran. If oil prices spike, households feel the pinch, and grocery inflation jumps again.
Naturally, that could hit sales and tighten its margins. New guidance points to operating profit of £3bn-£3.3bn and free cash flow of £1.5bn-£2bn. I’d say that’s understandably cautious, all things considered.
But what do major brokers think?
Mixed opinions
Brokers are divided. JP Morgan lifted its target to 500p last week with an Overweight rating, suggesting optimism that Tesco will hold its market share and manage rising costs. Bernstein’s gone further, with an Outperform rating and a 520p target, arguing that the grocer’s scale and brand strength justify a higher valuation.
But not everyone’s bullish. Jefferies sits on a Hold rating with a 430p target, indicating it feels the stock’s now ovevalued after such a strong run. So what does this all mean for investors?
Still a compelling option
For investors, the question is less about where the Tesco share price will go next, and more about whether they’re comfortable with the risk.
The business is undeniably strong, cash‑generating, and dividend‑paying, which makes it a tempting income holding. But the price has already refocused on 2026/27, and the Iran‑related backdrop means it could easily trade sideways (or dip) if oil or inflation increases.
My verdict? Tesco still looks reasonably atractive as a dividend and defensive holding. However, it’s now moved quite far out of ‘value’ territory and may even be overpriced.
If you’re building a long‑term income portfolio, it’s still worth considering. But after a 109% gain in five years, I wouldn’t expect any big moves above 500p in the short term.
