May 24, 2023

As the Tesco share price loses steam, is it a good retail stock?

Tesco (LON: TSCO) share price has pulled back after soaring to the year-to-date high of 277.8p earlier this month. The stock was trading at 267p on Wednesday after the latest UK inflation data and after the spectacular results by Marks and Spencer. 

M&S earnings and UK inflation data

The biggest UK retail news on Wednesday was the upbeat results by Marks and Spencer. In a statement, the company said that its profit before tax came in at £482 million in the year to April 1. Its statutory profit before tax jumped to £475 million. As a result, the company decided to restart paying dividends, citing the improving business conditions.

The positive results by M&S is a sign that other British retailers like Tesco are also doing well even as the cost of living crisis continues. In April, Tesco’s preliminary results showed that the company’s annual sales jumped to £57.6 billion while its adjusted operating profit dropped to £2.6 billion. The company also reduced its net debt slightly.

The other important catalyst that moved the Tesco share price was the latest UK inflation data. According to the Office of National Statistics (ONS), the headline consumer price index dropped from 10.1% in March to 8.7% in April. Core inflation, which strips the volatile food and energy products, rose from 6.2% to 6.8%. The two figures rose on a month-on-month basis.

Tesco, as the biggest retailer in the UK, is usually impacted by inflation figures. For one, the company is seen as the home to affordable products. As such, it usually attracts customers seeking for bargains. Also, the company could benefit as it adjusts its pricing.

Analysts are generally bullish on Tesco stock. Those at Shore Capital recently reiterated their bullish outlook of the stock. Similarly, those at JP Morgan and Jefferies also upgraded their targets to 290p and 310p, respectively.

Tesco share price forecast

Tesco chart by TradingView

TSCO stock price has made a spectacular recovery in the past few months as it jumped from last year’s low of 190p to a high of 277.7p on May 9. As it jumped, the shares approached last year’s high of 281.1p. It also moved above all Fibonacci Retracement levels. It remains above the 25-day and 50-day exponential moving averages (EMA).

Therefore, despite the recent pullback, I believe that the shares have more room to climb in the next few months. This rally will be confirmed when the stock moves above the year-to-date high of 277p followed by last year’s high of 281p.

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