Tesco’s (LSE: TSCO) share price has had a good run. Yesterday, it jumped nearly 6% and hit its highest level since 2014. Over the last year, it’s risen 25%.
Is Tesco a good stock to buy for my portfolio? Let’s take a look.
Tesco’s share price could keep rising
In the near term, I think Tesco shares have the potential to keep rising. One reason I say this is that the company yesterday posted a strong set of H1 results for the 26 weeks to 28 August.
For the period, group sales were up 3% to £27.3bn, while adjusted earnings per share lifted 54% to 11.2p. Free cash flow from the retail arm was up a huge 94%.
“We’ve had a strong six months; sales and profit have grown ahead of expectations, and we’ve outperformed the market,” said CEO Ken Murphy.
On the back of these strong results, the group upgraded its full-year profit expectations. It now expects adjusted retail operating profit to range £2.5bn-£2.6bn. That represents a 4% increase on the group’s previous guidance. The company also announced it would be buying back £500m worth of shares.
I think these good H1 results, the increase in profit guidance, and the news of the share buyback programme should support Tesco’s share price, which is currently in a strong short-term uptrend.
The stock isn’t expensive right now (forward-looking price-to-earnings ratio of 14), so there could be further upside on the cards.
A good long-term investment?
As a long-term investor however, I’m looking for more than short-term share price gains. I want stocks that could double or triple my money over the next five-plus years. And looking at Tesco, I’m not sure where share price gains are going to come from in the long run.
For starters, industry growth’s likely to be subdued in the years ahead. According to analysts at research firm IDG, the UK retail food and grocery market is set to grow by just 8.1% between 2021 and 2026. That equates to an annualised growth rate of just 1.6%. How is Tesco going to grow when the industry is only growing at that rate?
Secondly, Tesco’s likely to face intense competition in the years ahead. Not only is it set to face competition from traditional rivals, such as Aldi, Lidl, and Waitrose, but it’s also likely to face competition from new digital players, such as Amazon and Uber Eats.
Analysts at Edge Retail Insight believe Amazon will actually overtake Tesco as the UK’s largest retailer by 2025. It’s worth noting here that Tesco’s market share has declined significantly in recent years. This trend could well continue.
Tesco shares: my move now
Given the long-term outlook, I’m going to leave Tesco shares on my watchlist for now. All things considered, I think there are much better stocks to buy today.