Tesco (LSE: TSCO) shares have taken me without warning. A number of years in the past, I rejected the concept of shopping for them out of hand.

I believed the large supermarkets have been accomplished as German discounters Aldi and Lidl devoured up market share. The UK cost-of-living disaster didn’t simply make customers poorer, it made uncooked supplies pricier, squeezing Tesco from each ends.

Additionally, Tesco operated to the best of margins of simply 3% or so. It has enormous fastened prices with a nationwide community of shops and staffing numbers into the six digits. Plus its popularity was nonetheless tarnished by the disastrous Philip Clarke, which resulted in a revenue warning and accounting scandal.

The Tesco share price is flying

Quick ahead a couple of years and Tesco is in a a lot jollier place. It’s nonetheless the most important UK grocer by far, and it’s rising too. Newest Kantar knowledge confirmed Tesco market share hitting 27.8%, the very best since January 2022.

Its shares are up 57.44% over 5 years, and 36.74% over 12 months. That’s 4 occasions common FTSE 100 progress of 8% over the identical interval.

Tesco’s trailing yield has fallen to a modest 3.27%. That’s partly down to its booming share price, however not totally. The board hiked the dividend by 11% to 12.1p per share in 2024. Nevertheless, it’s held it in two of the final 5 years (at 9.15p in 2021 and 10.9p in 2023).

A complete return of round 40% over the past yr is fairly spectacular for a £25bn blue-chip, working in a mature and aggressive market. Tesco additional rewarded traders with £750m value of share buybacks.

Stellar FTSE 100 inventory

Tesco was an excellent funding 5 years in the past, however what about as we speak? As we noticed this morning, the cost-of-living disaster isn’t fully over, with inflation regular at 2.2% in August. Wages grew 5.6%, making folks higher off in actual phrases, however family budgets are nonetheless below strain.

First-quarter gross sales jumped 4.6%. On 13 September, Citi predicted second-quarter progress of three.8%, upgrading its earlier prediction of three.4%. It reckons Tesco is on the right track to beat full-year steerage because of “low-single-digit UK food inflation, and four straight quarters of UK market share gains”.

Citi upped its price goal from 350p per share to 425p. That’s up 15% from as we speak’s share price however is on the larger finish of dealer expectations. The 12 analysts following Tesco have a median one-year price goal of 380.5p. That’s not fairly so lip-smacking.

Tesco shares aren’t that costly, buying and selling at 15.6 occasions earnings, however they’re not low-cost both. The Labour authorities’s plan to spice up staff’ rights may put strain on Tesco, which not too long ago misplaced a authorized case to buy staff’ union Usdaw over its ‘fire-and-rehire’ ways. Working margins stay slender at 4.1%. If Tesco struggles to construct on current market share good points, there’s a danger that traders may lose curiosity.

Each inventory has dangers and these appear comparatively minor. So is Tesco a no brainer purchase? As a lot as any inventory might be, sure. I’ll purchase it when I’ve the money