UPDATE: Tesco (LSE: TSCO) shares have skyrocketed 23% in 2025, with the current share price hitting 453p. Investors are now urgently questioning whether these shares can still provide attractive returns after such a significant rise.
Analysts project Tesco’s earnings per share (EPS) for the year ending 28 February 2026 to be 28.4p, which translates into a price-to-earnings (P/E) ratio of approximately 16. This figure is notably above the FTSE 100 average of 13.5 and is considered high for a supermarket.
What does this mean for investors? Just because a stock reaches full valuation doesn’t eliminate the potential for good returns. If Tesco continues to grow its earnings and maintain dividends, the prospects remain positive. Analysts anticipate an 11% rise in EPS to 31.5p for the fiscal year starting 1 March 2026. A steady or increasing P/E ratio could lead to significant share price growth over the next year.
Currently, Tesco boasts a dividend yield of around 3.2%. To achieve a 10% total return in the next 12 months, the share price would only need to increase by 6.8%.
The critical question remains: Can Tesco meet these optimistic earnings forecasts? Recent data shows that Tesco has regained market share, now sitting at 28.2%, up from 27.7% a year ago. This growth is attributed to strategic pricing efforts that match Aldi’s prices and a successful promotion of the Clubcard loyalty scheme.
Looking ahead, Tesco’s commitment to a £1.45 billion buyback program could further enhance earnings per share. This initiative, announced last month, signals confidence in future growth. However, investors should remain vigilant regarding potential threats, including aggressive pricing from competitors like Asda, changing consumer spending habits, and rising operational costs.
In summary, while Tesco shares have demonstrated solid potential for growth, I am cautious about rushing into purchase decisions. A dividend yield of 3.2% combined with anticipated earnings growth suggests there are still attractive returns on the horizon. However, a careful evaluation of broader market opportunities may reveal better investment options currently available.
Stay tuned for more updates on Tesco and other market developments as they unfold.
