The Tesco (LSE:TSCO) share price has been one of the quiet success stories of the FTSE 100 over the last five years. Shares of the retail giant have climbed 97.8% since July 2021, turning a £5,000 investment into £9,890, or £12,040 for shareholders who have been reinvesting dividends paid along the way.
But with the stock now trading around 470p, is there any meaningful growth potential left? Here’s what the City’s analysts think.
What the analysts are forecasting
Overall, the mood on Tesco is firmly positive. Sixteen analysts currently cover the stock, with 11 rating it a Buy or Outperform, four saying investors should Hold, and only one recommending to start taking profits.
And when looking at the latest share price forecasts, the outlook appears similarly bullish. The average consensus for Tesco is a share price target of 515p – around 10% higher than where the stock’s trading today. And when zooming in on individual projections, one analyst thinks the retailer could climb to as high as 550p, or a 17% return on investment.
To put those numbers into context, a £5,000 investment at today’s price could grow to around £5,500 if the consensus proves correct. Yet if the most optimistic analyst is right, then that same £5,000 climbs to around £5,850.
So now the question becomes, is this optimism well-founded?
Why analysts believe there’s more to come
The UK grocery market is quietly becoming a two-horse race, with Tesco and Sainsbury’s cementing their dominance as weaker mid-market players struggle.
Tesco’s decision to aggressively protect its price position against discounters such as Aldi and Lidl through its Clubcard loyalty scheme is seemingly working well. Like-for-like sales continue to grow, with Tesco’s market share now at its highest point in over a decade.
What’s more, this loyalty scheme has transformed into a genuine competitive moat. It generates a mountain of purchasing data that allows Tesco to personalise promotions more effectively than any competitor.
As a result, Tesco’s rising value perception in the eyes of customers keeps them coming back. And subsequently, the business is looking increasingly like a quality compounder for investors.
What could go wrong?
The biggest near-term concern is the UK consumer. Mortgage rates remain elevated, household budgets are still stretched, and any fresh economic shock could prompt shoppers to trade down more aggressively than Tesco can offset through discounted volume.
Competition from the discounters isn’t going away either. Aldi and Lidl are still significant threats, and opening stores at pace across the UK, particularly in catchment areas where Tesco’s historically been strong.
So far, Tesco’s proven itself resilient against such disruption. But if that changes, then after such a strong bull run, the share price could start to wobble as more investors begin taking profits.
Is now the right time to consider buying Tesco shares?
The business is operationally strong, cash generative, and rewarding shareholders with both a growing dividend and a buyback programme.
While I don’t think Tesco will be delivering any explosive gains, patient investors looking for a defensive shelter against wider stock market volatility may indeed want to take a closer look.
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Zaven Boyrazian does not hold any positions in the companies mentioned.
