Tesco (LSE: TSCO) shares have been struggling to ride the storm of recent market volatility, falling 15% so far in 2022. That being said, the shares have returned over 10% in the last 12 months, highlighting a strong recovery from the pandemic.
With the stock currently sitting at 250p, is now the time to buy? Let’s take a closer look.
Strong results
Tesco released its Q1 2023 trading statement last week, which contained some solid results. Like-for-like UK and ROI sales rose by 1.5% year on year, and 9.7% over a three-year period. The £12.5bn sales figure surpassed pre-pandemic results, highlighting the impressive recovery of the firm. In Central Europe, sales grew over 9% in the past year, demonstrating the growing international presence of the firm. In addition to this, the firm announced it had raised its market share by 37 basis points, which outperformed expectations in both value and volume.
Tesco has also been taking steps to build out its online delivery presence. In January, it announced plans to open 25 new urban fulfilment centres across the UK to capitalise on the growing online demand. Analyst predictions suggest the online grocery market could be worth over £22bn by 2025. Tesco looks well-positioned to take full advantage of this growth should its fulfilment plans materialise.
In addition to this, it has been taking encouraging steps towards competing with cheaper supermarket chains. Its Aldi Price Match scheme has grown to take in 19% more products this year than last. Its Low Everyday Prices products have risen by the same percentage.
Finally, Tesco shares currently yield a dividend of 4.36%. This could help me combat rising inflation and add some passive income to my portfolio.
Expensive shares
Tesco stock currently trades on a price-to-earnings (P/E) ratio of 12.7. On the surface, this doesn’t seem too expensive and isn’t far from the value P/E barometer of 10. However, looking at J Sainsbury and Marks and Spencer, which trade on P/E ratios of 7 and 9, respectively, the share price does look a little steep for my liking.
Although Tesco has been taking action to stop the drift towards low-cost rivals like Aldi and Lidl, rising inflation could hinder this progress. As prices are being pushed up across the board, and the cost-of-living crisis worsens, more and more customers are likely to make the switch. Tesco operates with tiny margins so any losses in its consumer base could prove catastrophic.
A buy at 250p?
As I said, at 250p, Tesco shares look a little too expensive for me, especially compared to the wider market. Yes, sales have proved consistent, and growth prospects are encouraging. But I think rising prices could really hurt Tesco over the coming months. What’s more, the threat of a UK recession could slow the supermarket’s progress even more. For this reason, I won’t be buying the shares today.