Here’s the Tesco share price forecast for the next 12 months!

Tesco’s valuation has dropped to multi-year lows after recent share price weakness. Is now the time to consider buying the FTSE 100 firm?

| More on:
Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Food retailers are often popular safe havens in turbulent economic times like this. Yet Tesco‘s (LSE:TSCO) share price has slumped over the past week, first on fears of the potential impact of global trade wars, and more recently on signs that the industry’s ‘price wars’ are about to intensify.

At 324.4p per share, Tesco shares were last dealing 4.4% lower on Monday (17 March). They’re now at their cheapest level since last summer.

City analysts, however, think Britain’s biggest retailer will soar in value over the next 12 months. So should I consider opening a stake in the FTSE 100 company to capitalise on a price recovery?

Should you invest £1,000 in Tesco right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Tesco made the list?

See the 6 stocks

A 26% rebound?

Created with Highcharts 11.4.3Tesco Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

As with most stocks, the price outlook for Tesco shares takes in a broad range of highs and lows. On the most pessimistic side, one analyst believes the business will fall 2.6% from current levels over the next year, to 316p per share.

At the other end of the scale, one especially bullish broker thinks the supermarket will rise 35.7% from current levels to 440p.

On the whole, City analysts are pretty optimistic over the direction of Tesco’s share price between now and March 2026. The average price target among 15 brokers with ratings on the business is 407.2p.

That represents an 25.5% premium to today’s price.

Cheap on paper

Following Monday’s drop, Tesco shares are now down a sizeable 14.2% over the past week. This means that they now trade at a valuation far below the five-year average.

The retailer’s changed hands on a trailing price-to-earnings (P/E) ratio of 19 to 20 times on average since March 2020. Today that figure sits at a far more modest 12.3 times.

To fans of the FTSE stock, such a low valuation may leave scope for a sharp price rebound.

It’s not a view I share, however. I believe Tesco shares merit a lower valuation. I also think there’s a good chance the business will continue to drop.

Huge competition

As described at the top, Tesco’s share price dropped on signs that industry competition will jump a notch or two.

On Friday, Asda — the UK’s third-largest supermarket — pledged to use its “pretty significant war chest” to invest in prices to revive sales. Price wars are nothing new in the grocery sector, but it adds extra intensity to a market already squeezed by discount chains Aldi and Lidl.

Supermarkets can choose not to chase prices lower at the expense of revenues. Or they can join the fight and watch their margins be whittled away.

This is a major concern given how thin Tesco’s profit margins already are (4.5% between March and August last year, latest financials showed).

The tough economic climate makes the threat posed by discounting even sharper as shoppers chase value. With the aforementioned German operators committed to long-term expansion, too, the problem isn’t going away any time soon.

The verdict

For these reasons, I’m not tempted to buy Tesco shares for my portfolio, even as brokers tip a sharp price rebound.

On the plus side, the firm’s wholesale and banking divisions provide good opportunities for it to grow earnings. It also carries considerable brand power and customer loyalty through its Clubcard programme.

But on balance, I think the business carries too much risk, even at today’s beaten-down prices.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Tesco right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Tesco made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild does not own shares in Tesco Plc. The Motley Fool UK has recommended Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

A young black man makes the symbol of a peace sign with two fingers
Investing Articles

I asked ChatGPT to name 2 cheap FTSE 250 stocks with huge recovery potential. I got these!

Harvey Jones is on the hunt for great value FTSE 250 stocks following the recent market dip, and decided to…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

A 6.4% yield but up 25% from last April, are Aviva shares worth me buying now?

Aviva shares are trading near a seven-year high and although their yield has fallen it's still good. So should I…

Read more »

Investing Articles

At around £8 now, Rolls-Royce’s share price looks cheap to me anywhere under £12.42

Rolls-Royce’s share price has soared over the year, but there could still be a lot of value left in it.…

Read more »

Calendar showing the date of 5th April on desk in a house
Investing Articles

3 steps to safeguard a Stocks and Shares ISA in 2025

This year's gearing up to be a wild ride for stocks and shares so investors should consider a careful approach…

Read more »

Investing Articles

Up 290% in 5 years, can the Barclays share price keep climbing?

Andrew Mackie assesses the effect the structural hedge has had on the Barclays share price and whether this benefit is…

Read more »

White female supervisor working at an oil rig
Investing Articles

What’s going on with the BP share price in 2025?

The BP share price is up from its nadir, but the volatility's arguably making it hard to invest. What’s more,…

Read more »

Investing Articles

What’s going on with the Tesla share price now?

It’s been a terrible few weeks for Elon Musk’s net worth with the Tesla share price falling by more than…

Read more »

Investing Articles

3 reasons to avoid Greggs shares in 2025

Greggs shares have endured a greatly deserved sell-off in recent months. Dr James Fox thinks investors should consider staying away.

Read more »