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The Tesco (LSE: TSCO) share price has done it again in February. It jumped nearly 14.5%, more than doubling the return of FTSE 100which was also very good at 7%. Tesco shares are now up 27% in 12 months and 115% in five years. Can they maintain this momentum?
The grocery giant roared after losing its way under former chief executive Philip Clarke, who resigned in 2014. Successor Dave Lewis cut costs, sold non-essential goods, simplified operations and renewed customer confidence.
The Core FTSE 100 held
Current CEO Ken Murphy has built on that. He sharpened Tesco’s value proposition, invested in product range and strengthened its online and convenience offering. 23m of us now hold a Club card, which improves customer loyalty and sales, and we provide valuable data for personalized sales, discounts and complementary offers. Tesco has once again become the clear leader in a highly competitive field.
Its market share now stands at 28.7%, comfortably ahead of second place Places to stay in Sainsbury by 16.2%. Aldi and Lidl are still a threat, but know their place.
Tesco increased its market share over the Christmas week to 29.4%, the highest figure in more than a decade. Fresh food has done very well, but group sales have fallen since then, with Booker’s wholesale business struggling. Tesco now expects adjusted operating profit for 2026 to come in at the lower end of its guidance range of £2.9bn-£3.1bn. By 2025, it was £3.1bn. So that’s disappointing.
It seems investors don’t care. They love Tesco right now. The price-to-earnings ratio reached 17.5. That’s not a bleeding edge, but for a supermarket that has to fight tooth and nail to protect tiny margins of around 4%, it’s a bit demanding.
Cost is always a challenge. Tesco is the largest private sector employer in the UK and should receive higher employer National Insurance contributions and two increases in the National Living Wage. Slowing food inflation should help consumers and margins, but the UK economy remains fragile. Rising unemployment may affect spending power as well.
The risk of a price war
There are other challenges. Discounts don’t go away. Price wars can break out at any time. Troubles in the Middle East could increase oil prices and inflation.
I have been looking at consumer forecasts, and they are underpowered. The consensus 12-month price target is now 479p, a cent below today 480p.
Of course, predictions should always be taken with a grain of salt. No analyst has a crystal ball, yet he is well paid. And, most of those prices will have been set before the February stock price jump. But it reflects my suspicion that after a strong run, Tesco shares may find it difficult to go from here. The next yield is down to 2.75%, so there is income on offer for new investors.
I still think Tesco is worth considering from a long-term perspective. It’s a high-quality operator in top condition. But the joy may end. Stock price performance can be cyclical, especially in the consumer sector. Fortunately, investors can still find plenty of other FTSE 100 stocks at cheap valuations and, possibly, with strong earnings and growth prospects as well.
