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I Tesco (LSE:TSCO)’s share price has been on an incredible trajectory over the past few years. Even in 2025, when some thought it looked more important, it continued to rise, gaining 22% last year. With the latest holiday trade update showing more reason for optimism, the question now turns to how much can realistically continue.
Market dominance
Let’s focus, first, on the latest price support drivers. In my opinion, part of it comes from market share gains. The data showed that it reached about 28.7% by the end of 2025 (its highest level since 2015) as it surpasses competitors in the competitive landscape. This speaks to the strong customer loyalty the company has built, especially through initiatives like the Clubcard strategy.
Fast forward to last week, a trading update for the six weeks to early January showed that the group’s like-for-like sales rose by 2.4%. The CEO commented that one of the drivers was “launched 340 new and improved Christmas products including 180 at Finest, which also delivered double-digit sales growth.“
It is also worth mentioning the impact of AI. While some may think this is out of the ordinary for a supermarket, they’d be in for a surprise! The report mentioned it “AI-powered planning tools developed by our technical and property teams” to help improve the efficiency of online delivery spaces.
The way from here
The momentum Tesco has right now makes me think the meeting is for good reason. The increase in share price has been accompanied by profits. This is reflected in the price-to-earnings (P/E) ratio of 16.33. This is just under FTSE 100 average, which means it’s not overexposed.
2025 earnings per share are 30p, an increase of 19.5% from the previous year. I think we could see profits grow by another 10% this year, assuming the company maintains its high market share. If the P/E ratio remains the same, this would indicate another 10% upside in the share price.
Strong performance over Christmas leads me to believe that UK consumers are in a better place financially than I previously thought. This should mean that Tesco can continue to do well in its premium categories this year. But at the same time, when the economy slows down and people become more price conscious, Tesco has a wide range of cheap options.
Another point that may support the stock is the dividend. Tesco’s ability to turn strong sales and operating performance into free cash flow supports a higher dividend over time. Evidence of this can be seen in the increase in dividends per share over the past few years. The yield is currently 3.13%, above the average of the FTSE 100. If this increases in the coming months, it could attract more income investors, pushing the stock up further.
Another risk is that the UK grocery sector is highly competitive. Price wars with other supermarkets are common, and aggressive promotional activity can hurt Tesco’s margins.
Despite this, I think the company is well positioned and can be considered by investors.
