Tesco (LSE:TSCO) shares have been on a rampage in recent years. They outperformed the FTSE 100 in 2023, 2024, 2025 and, so far, this year too. Impressive stuff.
It means that anyone who invested £7,000 in the UK’s leading supermarket three years ago would now have roughly £14,000. Dividends would have taken the total to nearly £15,000.
Unfortunately, I don’t have Tesco shares in my portfolio, so I haven’t benefitted. Should I rectify that and invest today?
Cementing its leadership position
Stepping back, I don’t think there’s been one single thing that’s sent the Tesco share price soaring in recent years. It’s been a number of things coming together, including group-wide efficiency savings and share buybacks.
That said, I think investors have been especially impressed with how Tesco has defended its market-leading position. In particular, the Aldi Price Match scheme — aimed at price-sensitive shoppers — has helped neutralise the threat from the German discounters.
Tesco has also turned danger posed by food delivery apps into an opportunity. Its Whoosh service grew sales 37% in the six months to 29 August (H1), and is on track to deliver sales of more than £500m in the 2026/27 financial year.
Whoosh is now the UK’s number one choice for rapid grocery delivery, and we are building on that position with new partnerships with Uber Eats and Deliveroo, helping us reach even more customers.
Tesco
Another potential threat that has melted away is Amazon. For years, there were concerns that the tech giant could use its own powerful Prime loyalty programme to steal Tesco’s customers. However, it has abandoned its Amazon Fresh grocery store concept in the UK.
Finally, Tesco has managed to poach customers away from rivals such as Asda. Last we heard, its UK market share stood at 27.8%, up 113 basis points in four years.
Another strong period
On 8 October, the company delivered a robust H1 update. Adjusted operating profit rose 6.5% to £1,783m on sales of £33,776m. Earnings per share jumped 12.2% to 17.3p.
Management flagged strength in online sales (+8%) and the Finest range (+9%). The latter has been a surprise beneficiary of the inflationary environment, as high restaurant and pub prices have forced more folk to dine at home.
Looking ahead to the full year, Tesco expects group adjusted operating profit ranging £3.15bn-£3.3bn (versus £3bn-£3.3bn previously). This went down well with investors.
Will I invest?
Every time I look at Tesco, I’m very impressed. Since October 2021, it has bought back a total of £4.8bn worth of shares, at an average share price of 329p. The current price is 550p, so this has been a smart allocation of capital.
However, I also can’t help feeling I’ve missed the boat. After all, the share price has jumped 16% since last month’s earnings reports, putting it at a 16-year high.
Meanwhile, the price-to-earnings ratio is 18.5, which isn’t exactly cheap, and the dividend yield is now just 2.7%. I don’t think there’s much of a margin of safety at this valuation. After all, growth could disappoint over Christmas if inflation-weary consumers shop around different supermarkets.
If I’m able to nab Tesco stock at the right price for my retirement portfolio, I will take my chance. But I don’t think now’s the time.
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Ben McPoland has no position in any of the companies mentioned.
