UPDATE: Tesco (LSE: TSCO) shares have skyrocketed by 23% in 2025, prompting urgent questions about their future profitability. As of now, investors are eager to know if this surge can translate into continued attractive returns.
The latest data reveals that Tesco shares are currently priced at 453p, leading to a price-to-earnings (P/E) ratio of about 16. This figure surpasses the FTSE 100 average of 13.5 and is notably high for a supermarket. Analysts predict earnings per share (EPS) of 28.4p for the fiscal year ending 28 February 2026, raising questions about whether the stock is already fully valued.
However, the potential for strong returns remains. Analysts forecast an 11% increase in EPS to 31.5p for the next financial year starting 1 March 2026. Should the P/E ratio hold steady or rise, investors could see significant growth in the share price over the medium term. Currently, Tesco offers a dividend yield of 3.2%, meaning a mere 6.8% increase in share price would lead to a total return of 10% over the next year.
What’s driving this optimism? Tesco has recently regained market share, now holding 28.2% compared to 27.7% a year ago. This resurgence is attributed to competitive pricing strategies, particularly their price-matching initiative with Aldi, and effective promotions of the Clubcard loyalty program, which has gained traction amid a decline in rival Asda’s rewards scheme.
Moreover, Tesco’s ongoing £1.45 billion share buyback program—announced last month—could further bolster EPS figures. Yet, challenges loom on the horizon. Intense competition, particularly from Asda’s aggressive pricing, along with fluctuating consumer spending patterns and rising operational costs could hinder Tesco’s earnings growth.
Despite these risks, analysts maintain a cautiously optimistic outlook for Tesco’s earnings growth in the near future. While I believe in Tesco’s potential for solid returns, I advise investors to consider other opportunities currently available in the market.
In summary, Tesco shares are poised for potential growth, supported by a healthy dividend yield and promising earnings forecasts. However, investors should conduct thorough research before making any decisions.
Stay tuned for further updates as this story develops, and consider your investment options carefully in light of the evolving market landscape.
