Part of your Psyche = Part of your Portfolio?

Tesco is so established in this country that it’s a part of the British psyche, and on that basis alone, you could argue that the leading supermarket chain, should have a place in your portfolio.

Of course, familiarity isn’t a justification for an investment on its own, but there is plenty to like about the stock right now that does justify it.

Tesco has sales of £66.60 bln per annum, an operating profit of £3.152 bln, and free cash flow of £1.957 bln (2025 numbers). Those financials are driven by a 28.50% share in the UK grocery market. The company employs 330,000 staff and operates just over 5000 stores, the vast majority of which are in the UK.

Despite tough economic conditions and a government that could hardly be called business-friendly, the grocer is enjoying something of a renaissance and is reminding us why it's the top dog among retailers and what it does so well.

Tesco recently reported its 2026/27 interim results, which showed that sales excluding fuel were up by +1.60% and operating profits by +6.0%. Free cash flow rose by +21.0% and EPS by +12.20%, all of which allowed the company to declare an interim dividend of 5.05p, itself up +5.20% over the comparable period last year. 

The free cash flow and profit that Tesco generates also allow the company to buy back its own stock, and it's currently more than halfway through a £750.00 million share buyback, which is due to be completed by April 2027.

Tesco also reported that its consumer satisfaction was at an all-time high, an intangible metric that says a lot in the increasingly competitive UK grocery market.

The firm took the opportunity to reiterate its 5-point strategy for success, which is comprised of :

Winning in food.

Meeting more customers' everyday needs.

Being the most strategic partner for its suppliers.

To be connected, personalised, and loved by customers.

All of which should be underpinned by long-term business sustainability. 

Writing after the earnings release, Deutsche Bank said of the stock:

 “We continue to view Tesco as a best-in-class operator in UK grocery. We are particularly encouraged by the resilience of earnings, despite subdued UK LFLs. Profit growth is increasingly supported by a combination of favourable sales mix (e.g. Finest +8.9%), cost savings and ancillary income streams such as high-margin retail media. Importantly, this is not coming at the expense of competitiveness, with customer satisfaction at a record high.”

Tesco is also seen as a buy by the broader market, with 7 buy, 3 neutral and 1 sell recommendation among the 10 analysts covering the name. 

To summarise, Tesco is the ultimate UK defensive play, brilliantly managed and extremely efficient in its day-to-day operations across logistics and retail.

Performance 

Tesco stock is up +13.99% year to date, comfortably outperforming the FTSE 100 over that period. 

Over 5 years, the stock has risen by +88.0%, and over the last decade by +139.0%. 

One performance metric that caught my eye is the fact that Tesco stock has posted 53 new highs over the last two years, roughly one every fortnight. This suggests that price momentum and appreciation have been pretty consistent, which the chart bears out. 

520.6p is the stock's 20-year high price, and as such, it's a target to aim for. I am not expecting Tesco to blast through that level immediately, but if it can build a base at and around that price, it could be a platform for future price appreciation. Deutsche Bank’s price target is 550p, for instance. 

Overall Rating 4.0/5.0

Pros: A highly efficient, well-regarded business with a near 30.0% market share. 

It operates in Eastern Europe and the Republic of Ireland; it also has an insurance business with 2.0 million customers.

Cons: Tesco is a classic low-margin, high-volume business, which is sensitive to price pressures and inflation, that can erode its relatively fine margins. Other grocers are constantly gunning for Tesco’s customers and market share. Opportunities for significant growth at Tesco in the UK are limited. 

The October 28th budget could raise business taxes further and apply additional pressures to large employers and consumer-facing businesses.

Technical overview 

The Tesco share price has been in an uptrend for almost 4 years, having posted a low in October 2022. The 50-day MA line has supported that uptrend for the majority of those 4 years and has only been breached infrequently and briefly in that time. RSI 14 is currently around 68.64, not too far from the overbought boundary at 70 but not yet through it.

To be frank, in recent times a rising RSI 14 has been associated with Tesco price gains, so that may not be something to worry about. In recent weeks, both the 10- and 20-day MA lines have crossed up through their 50-day counterparts. The 10 Day line has also crossed above the 20-day, and both lines are trending upward right now.

Rating:4.0/5.0

Fundamental Overview 

Tesco trades on a forward PE of 16.30 times earnings, which is above Sainsbury's 14.29 times and Marks & Spencer's 14.71 times. If you buy Tesco at these levels, you are paying a premium to own what we can think of as the category killer in the sector. 

However, I have written before about the opportunities that AI could provide to large-scale retail operations in the US. There is no reason to think Tesco couldn't benefit from AI in areas such as logistics and planning, and in hyper-personalising ads and offers for its customer base. These improvements should ultimately flow through to the bottom line.

Rating: 4.0/5.0