Over the last five years, the Tesco (LSE:TSCO) share price has quietly doubled. A £5,000 investment made in July 2021 has grown to £10,042. And for investors who reinvested their dividends along the way, that figure rises to around £12,424. Not bad for a supermarket!
But after a run like that, is the stock still worth buying today? Or has the easy money been made?
The competitive moat’s widening
Tesco’s latest quarterly trading update shows a business still firmly in the driving seat. Group sales came in at £16.8bn, with UK like-for-like sales up 1.8% on top of an exceptionally strong prior year period. Two-year like-for-like growth in the UK stands at an impressive 6.9%, which tells a more complete story of the consistent momentum being built under CEO Ken Murphy.
Online growth continues to impress too, with sales up 8.9% in the UK. And Tesco’s insurance and mobile services are growing fast, with insurance policies in force now up 15% to 2.7 million customers.
It seems that Tesco’s quietly evolving from a grocer into a consumer ecosystem, and that has meaningful implications for the long-term margin trajectory. Even in the near-term, management’s reiterated its underlying operating profit guidance of £3bn-£3.3bn. And analysts have taken note.
The team at Morgan Stanley issued an Overweight rating with a 560p share price target – around 18.9% higher than where Tesco shares are trading today. And looking across the full spectrum of price forecasts, the mood from institutional experts seems to be pretty bullish.
So with plenty of wind in Tesco’s sails, is this a cheap stock worth considering today?
What could go wrong?
At a price-to-earnings ratio of around 17, Tesco’s far from a deep value play. And after already doubling in five years, most of the re-rating has seemingly already happened. That doesn’t mean there isn’t more money to be made, but it does suggest another doubling might be difficult to deliver without a significant expansion of profits.
Growing the bottom line’s certainly possible. But with fierce competition from discounters such as Aldi and Lidl, alongside incoming expected energy inflation, Tesco might be forced to cut prices to stay competitive, putting direct pressure on its already razor-thin margins.
Meanwhile, while most of Tesco’s operations are running smoothly, Booker Wholesale remains a bit of a pain. While far from disastrous, like-for-like sales fell 3.2% during the first quarter, partly reflecting a lower-margin contract exit and some unfortunate prior-year comparatives.
But with growing strain on the UK economy, particularly in the restaurant and food services sectors, this downward trajectory could prove persistent throughout the rest of 2026 and potentially beyond.
The bottom line
Tesco isn’t the bargain it once was, but it remains a high-quality, competitively-entrenched business that seems to be getting better every year.
That’s definitely the hallmark of a steady compounder. And while growth investors will likely be disappointed, patient investors looking for a more defensive business may want to consider inspecting this stock a bit closer.
Should you invest £5,000 in Tesco Plc right now?
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Zaven Boyrazian does not hold any positions in the companies mentioned.
