Tesco (LSE: TSCO) shares keep doing the business, climbing another 8% over the last month. They’re up 16% in the last year and a tasty 88% in five, with dividends sprinkled on top.

I’m impressed. I thought competition in the grocery market would be too fierce, with German budget chains Aldi and Lidl nibbling its market share while the cost-of-living crisis hit shoppers across the board.

Yet under Ken Murphy, Tesco has continued its recovery. It has defended its market-leading position by investing in competitive prices, making better use of its Clubcard loyalty scheme and giving shoppers more reasons to spend. Its premium Finest range is popular, while online sales and cost savings have helped boost profits.

The grocer is pricier though

I’m still a little wary. Tesco shares trade on a trailing price-to-earnings (P/E) ratio of 17.5x. Last year, it was around 14.5x, so this FTSE 100 stock is more expensive than it was.

The forward P/E ratio is around 16.5, suggesting investors expect earnings to grow, but not spectacularly. Tesco needs to keep delivering if the shares are to justify their valuation.

At times during their recent strong run, Tesco shares yielded comfortably above 4%. Now the trailing dividend yield has slipped to 2.75%. That’s down to a strong share price performance. Even though the board has hiked the dividend at an average rate of 10% over the last five years, well above inflation, the rising price still makes the income less attractive to new buyers.

Latest results were strong

Half-year results on 8 October were encouraging. Sales excluding VAT and fuel rose 2% to £33.8bn, while adjusted operating profit climbed 6.5% to £1.78bn.

Tesco raised the lower end of its full-year adjusted operating profit forecast from £3bn to £3.15bn, while holding the upper end at £3.3bn. It also increased its share buyback to £950m.

But there are risks. Higher employment costs, rising fuel and energy bills, and new regulatory charges are squeezing retailers. Rising food inflation could encourage shoppers to trade down or hunt for discounts. And wholesale subsidiary Booker Group continues to flounder. Tesco’s market share has slipped, if only slightly.

A tasty time to buy?

There are reasons to stay positive. Tesco has the scale to survive any price war, a powerful brand and loyal customer base. Its investment in prices and service is paying off. Online shopping, rapid delivery and premium products offer further growth opportunities.

I think the long-term outlook remains bright. If I held Tesco shares, I wouldn’t sell them today. But I don’t own them, and I’m not convinced this is the ideal time for me to buy. After such a strong run, Tesco needs to go great guns in a fiercely competitive market to deliver another year of impressive share price growth. I think there’s more excitement to be found elsewhere on the FTSE 100, including these stocks…

Should you invest £5,000 in Tesco Plc right now?

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Harvey Jones does not hold any positions in the companies mentioned.