Here’s why the Tesco share price could keep rising

The Tesco share price has been rising this year. Dan Appleby has been analysing the company and thinks the share price could keep rising through 2022.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

The Tesco (LSE: TSCO) share price has held up well this year as stock markets have been volatile. The stock is up 2.5% so far in 2022. However, over one year, the share price is down by 2.5%.

I think the stock can keep rising from here though. I’ve been impressed by Tesco’s strategy and improving fundamentals. Let’s take a look.

A rising Tesco share price

The pandemic has had a major impact on shopping habits. It’s meant consumers are ordering far more online nowadays, including home delivery of groceries.

Should you invest £1,000 in Tesco right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Tesco made the list?

See the 6 stocks

Tesco is leading the way in this shopping channel relative to its competitors. In fact, Tesco almost doubled its online delivery capacity during the pandemic. According to a recent trading update for the 19 weeks ended 8 January, the company said it had the highest total market share in four years. This included online shopping where it continues to grow relative to its competitors.

The company has been innovating in this channel, too. Its Tesco Whoosh initiative is targeting superfast home delivery, which is now in more than 100 stores. Tesco is showing it can compete with the likes of smaller start-up companies in this area, such as Getir, even though it’s an almost £23bn company and member of the FTSE 100!

Financial trends and earnings are improving, too. In the recent trading update, both one-year and two-year like-for-like sales were positive across the UK and Central Europe. This meant Tesco upgraded its retail operating profit above the top-end of its previous expectations.

For the full-year to 28 February, City analysts now forecast operating profit growth of 25%. If this growth is achieved, the shares would be valued on a price-to-earnings ratio of 14. This isn’t particularly high, especially if the company keeps growing market share and earnings.

Risks to consider

Food retailing is a highly competitive market, with little in the way of differentiation between the businesses themselves. For instance, Tesco, Asda and Sainsbury’s are largely the same and simply compete on price.

Tesco also failed in its wider international expansion because it had no lasting advantage against other brands. It sold its Polish business, and exited Thailand and Malaysia. These aggressive expansion plans did lead to debt issues for the company, which have now been largely resolved. Nevertheless, it is something to monitor if Tesco embarks on similar plans in the future.

Should I buy Tesco shares

If I was to buy Tesco shares, it would primarily be for its income potential. Indeed, the cash flow generation forecasts for the company are excellent in the years ahead. In fact, analysts are expecting over £1.8bn in free cash flow for the next three years. This would be an annual free cash flow yield of 8% based on Tesco’s market value today.

Because of this cash generation potential, I’m expecting the dividend to rise in the years ahead. Not only this, but Tesco could well start a share buyback scheme. This would boost earnings per share, and hence the share price should also keep rising. So, today, I’d consider adding Tesco shares to my portfolio.


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Google office headquarters
Investing Articles

5 things to avoid when you start buying shares

Our writer shares a handful of possible missteps he thinks people ought to watch out for when they start buying…

Read more »

Female Tesco employee holding produce crate
Investing Articles

Up 31% in a year, what’s going on with the Tesco share price?

The Tesco share price has grown almost a third in just 12 months. Our writer wonders whether it's still attractively…

Read more »

National Grid engineers at a substation
Investing Articles

Does the National Grid share price really matter for an income-focussed investor?

In many investors' opinion, its dividend is key to the investment case for National Grid. Our writer reckons the share…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Invest like Warren Buffett? 3 easy ways to do it!

Christopher Ruane shares a hat trick of simple investing techniques learned from Warren Buffett that he uses when investing in…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

These 2 FTSE 100 stocks have doubled investors’ money in 2025! Too late to consider buying?

Harvey Jones is dazzled by two FTSE 100 stocks that have increased investors' money so far in 2025. Can their…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

2 FTSE 100 dividend stocks to consider for passive income growth that crushes the market!

Discover a pair of FTSE 100 dividend stocks that are tipped to outperform the UK stock market in 2025 --…

Read more »

Tesla building with tesla logo and two teslas in front
Investing Articles

Down 24% this year! But could Tesla stock make a stunning comeback?

Tesla stock's slumped by almost a quarter so far this year. But it's done well over the long term. So…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

What investors need to save in an ISA to target a passive income of £1,500 a month

Harvey Jones investigates how investors can build a long-term passive income through the power of compounding, tax-free inside a Stocks…

Read more »