Tesco share price jumped to 516p last week, its highest level since June after releasing strong financial results. It jumped to a high of 516p, up by 25% from its lowest level this year. This rally may continue as its growth remains steady despite the rising challenges.
Tesco published strong earnings
Tesco, the biggest retailer in the UK, published encouraging first-half results as demand for its products continued rising. Historically, Tesco does well in all market conditions because of its huge footprint and its cheaper prices than other retailers.
The most recent results showed that Tesco’s revenue rose by 3.2% in the first half of the year to £37.35 billion. This growth comprised of £33 billion from its retail operations and £3.5 billion from its fuel business. Tesco Media and Whoosh continued to contribute to its growth.
As a result, the company made an operating profit of £1.7 billion, up by 6.6% from a year earlier, while its profit after tax (PAT) jumped by 11.8% to £1.06 billion. This growth happened as the company continued to slash costs across its business.
The main blemish in that report was Booker, its wholesale business, whose revenue was affected by the ongoing decline in the tobacco market. It also continued to improve its balance sheet, with the net debt falling by £526 million.
Most notably, Tesco continues to gain market share in the UK. Its market share in the UK retail sector rose to 27.8%, even as competition from popular retailers like Aldi continued. It has done that by focusing on its price-match strategy. Its online sales continued rising.
Tesco faces some challenges ahead
Tesco faces some major headwinds ahead. One of them is the fact that the British economy remains under pressure, with inflation continuing rising. This jump has pushed Gilt yields to the highest level in years. Rising costs mean that consumers may spend less on discretionary products.
Another challenge is that the company is highly overvalued. It has a price-to-earnings ratio of 17, higher than other UK retailers. It is also slightly higher than the FTSE 100 Index average of 15.
Another challenge is that the cost of doing business continues to rise, while Booker’s weakness persists.
Tesco share price technical analysis
TSCO stock chart | Source: TradingView
The daily chart shows that the TSCO share price has rebounded in the past few months, moving from a low of 403p in January to 505p today. It has already moved above the key resistance level of 496p, its highest point on February 25 and July.
It has formed an ascending triangle pattern and remained above the 50-day Exponential Moving Average and the Supertrend indicator. Therefore, the stock will likely continue rising as bulls target the all-time high of 520p. A move above that level will point to further gains towards 550p.
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