Like a few other FTSE 100 shares, Tesco (LSE:TSCO) has emerged from the wilderness to produce market-beating returns over the past couple of years.
So much so that a £10,000 investment made half a decade ago to buy 4,444 shares would now be worth around £20,800. On top of this, shareholders have enjoyed rising dividends, adding another £2,300 or so to the total.
Another £431 from these shares would be due later this month when Tesco pays the final dividend for FY26.
Clearly then, an investment in the UK’s leading supermarket has been a tremendous success over this period. But how does the FTSE 100 stock look today?
Why has Tesco stock boomed?
There isn’t a single reason why the stock has done so well recently (it’s up roughly 53% in just two years). Rather, I believe it’s a number of factors coming together.
For a start, Tesco has been bolstering its competitive position, reaching its highest market share in over a decade. It has maintained an edge through strategies like Clubcard Prices, Aldi Price Match, and the expansion of its Everyday Low Prices range.
This puts to bed the notion that discounters Aldi and Lidl might poach customers. Meanwhile, Amazon has closed its UK grocery stores, and the threat of rapid grocery delivery apps has been turned into an opportunity, with its own Whoosh service growing sales by 51% last year.
Crucially, Tesco has navigated the inflationary environment masterfully in recent years by leveraging its massive scale to keep costs down and stay competitive. It’s also saving over £500m in internal costs annually to support stable margins.
We are committed to doing whatever we can to help keep down the cost of the weekly shop.
CEO Ken Murphy, April 2026
Finally, the supermarket has been aggressively buying back its own shares. Since October 2021, it has repurchased £4.3bn worth at an average price of 317p per share. The current price is near 470p, indicating efficient capital allocation.
Where are we now?
Looking ahead, industry competition isn’t going away, so there’s likely a natural ceiling to how high Tesco’s market share can reach. Also, inflationary pressures on shoppers’ budgets is an ongoing risk.
On balance though, it’s hard not to be impressed with Tesco’s scale. Beyond supermarkets, it owns Booker, the UK’s leading food and drink wholesaler, and One Stop, which has over 1,000 convenience stores.
Another thing worth mentioning is the amount of consumer data Tesco possesses through 24m+ Clubcard households. Brands are paying Tesco for access to anonymised first-party insights, while a recently announced partnership with Abode will leverage AI to personalise customers’ online experiences and better reward loyalty.
Tesco shares obviously aren’t as cheap as they were, but a forward earnings multiple of 14 for FY28 (starting end of February) doesn’t seem overly expensive. There’s a 3.4% forward dividend yield too.
I don’t see another doubling of the stock anytime soon. But over the medium term, I expect it to do well, driven by steady profitable growth boosted by ongoing share buybacks.
For me, Tesco is a quality compounder, with zero risk of AI disruption. I reckon it’s worth considering while down almost 8% from a recent high.
Finally, investors should look out for the forthcoming Q1 2027 trading statement, due Thursday (18 June).
Should you invest £5,000 in Tesco Plc right now?
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Ben McPoland has no position in any of the companies mentioned.
