Tesco (LSE: TSCO) has only made short sellers rich in 2014, with the shares down more than 40% since the start of the year.
Everybody else will be wishing they could return their stock for a full refund, especially Warren Buffett, who lost $678m on Tesco in just three months.
So what does 2015 hold?
Year Of Destiny
Tesco is either the biggest contrarian opportunity the FTSE 100 has seen for some years, or the ultimate value trap. 2015 will almost certainly supply the answer.
If it’s the former, you need to screw up your courage and invest now, while it’s is still in the bargain bin. Tesco is trading at just 6.1 times earnings, against more than 15 times earnings for the FTSE 100 as a whole.
That price certainly looks tempting, given that it’s still the largest UK supermarket by far, with market share of 28.7%, according to Kantar Worldpanel.
Its share price is down from 29.8% one year ago, but the rate of losses have slowed.
Sales continue to tumble, however, down 3.7% in the 12 weeks to 9 November.
Sectoral Slide
It’s always much harder work turning a company round when the overall sector is declining as well. Kantar’s figures show that grocery sales fell by 0.2% over the last year, the first time that has happened since 1994.
Price deflation is expected to continue into 2015, although hopes are rising that wage growth will finally return to put more money into shoppers’ pockets, and make them feel less bitter about supermarket prices.
Aldi and Lidl will no doubt continue to gain share at the expense of Tesco, Sainsbury’s and Morrisons, but their breakneck growth can’t continue forever.
2015 may reveal that they have now scooped up the low hanging (temptingly priced) fruit.
Low Expectations May Help
The big question hanging over Tesco is what new boss Dave Lewis does. Dave is quietly knuckling down to the task in hand, rather than making grand promises, but he will need to show concrete progress next year.
Given the conveyor belt of bad news Tesco has delivered this year, including profit warnings and accounting scandals, even a slight improvement could have a dramatic impact on market sentiment.
Buying shares in Tesco is a leap of faith. A company this size really shouldn’t be this risky, but it is. Tesco’s luck ran out this year, with even its rare successes — convenience stores — only succeeding in cannibalising superstore sales. The stock is too risky for me, but I may be kicking myself in one year’s time. Do you feel lucky?