Tesco shares attain new 18-year highs! Time to purchase in?

Tesco (LSE:TSCO) has been one of many FTSE 100‘s best-performing shares within the yr up to now. Up 21% since 1 January, Britain’s largest retailer has outpaced the UK’s broader blue-chip share index (up 17%).

Its give attention to the defensive meals retail phase helps to guard income when customers minimize spending, as we’re seeing in the intervening time. But it surely’s not completely immume to pressures because the cost-of-living disaster drags on.

So Tesco’s robust buying and selling numbers on Thursday (2 October) went an extended approach to soothing investor nerves, sending its share worth increased. My query right here is whether or not the Footsie grocery store can hold rising, and whether or not it’s a inventory I ought to take into account shopping for.

A fast recap

In a interval typified by “robust market share beneficial properties,” Tesco mentioned yesterday that gross sales rose 5.1% within the first half of its monetary yr, to £33.1bn.

Like-for-like gross sales progress topped forecasts by 30-40 foundation factors, at 4.3%. This was pushed by a 4.8% year-on-year rise in its core UK and Republic of Eire division, the place its market share has risen for 28 consecutive four-week intervals.

Adjusted pre-tax revenue rose 2%, to £1.4bn, which additionally got here in forward of Metropolis estimates. Adjusted working revenue rose 1.5%, to £1.7bn.

Following it robust first half, Tesco mentioned it now expects adjusted working revenue of £2.9bn-£3.1bn for the complete yr. That is up from a earlier forecast of £2.7bn-£3bn.

Sturdy efficiency

Tesco clearly has the bit between its enamel in a difficult market. Volumes are holding up regardless of worth will increase, and demand for its premium Best ranges can be rising sharply (up 16% within the first half).

The corporate’s additionally benefitting from its market-leading on-line grocery channel. Supply gross sales elevated 11% yr on yr, because it continues to faucet the rising web procuring market.

That is clearly a slick operator with skilled administration and powerful model energy. However is it a inventory I need to purchase? I’m not so certain.

Operating out of highway?

Trying previous these headline numbers, there have been some issues in there that spooked me.

Whereas Tesco is gaining share, that is coming at the price of margins. Adjusted working revenue margins dropped 10 foundation factors over the primary half because it invested in worth to battle off its rivals.

Naturally, it’s sensible to query how sustainable this price-cutting technique is. Chief government Ken Murphy commented that “aggressive depth stays excessive” and alluded to the “continued stress on family budgets.” So Tesco is more likely to have to hold slashing costs to help revenues.

Certainly, it’s a risk I anticipate to endure over the lengthy haul. The likes of Aldi and Lidl proceed to quickly develop, and — together with the remainder of the sector — proceed slashing costs to get customers via their doorways. With Tesco additionally combating persistent price challenges, issues are wanting gloomy for the grocery store’s margins, in my e-book.

Following its robust rise in 2025, Tesco’s share worth now instructions a ahead price-to-earnings (P/E) ratio of 16.4 occasions. That is far too excessive for my liking given these dangers, so I’m joyful to take a seat on the sidelines.