Tesco Share Price Forecast April: Unconvincing Recovery

The Tesco share price has gone nowhere in the past few days. It is trading at 282p, which is a few points above the year-to-date low of 265p. A quick look at the TSCO stock shows that it is undervalued ahead of its trading update that happens in the next two weeks. So, let us assess the recent price action and whether it is a good buy or sell.

Tesco is undervalued

Tesco has had a difficult period recently as its stock has retreated from its year-to-date high of 304p to the current 282p. This performance is mostly because of the ongoing logistics challenges and the rising cost of items that will slow its growth. As a result, the stock has become substantially cheaper compared to its peer companies. 

For example, Tesco share price has a GAAP trailing PE ratio of 17, which is slightly above the average multiple of other grocery companies. According to Stern University, Grocery stocks have an average PE multiple of about 16. Still, this multiple is lower than that of Sainsbury, that has a multiple of 19. Walmart and Kroger have multiples of 30 and 25, respectively. 

Therefore, based on its market share in the UK, Tesco seems like an undervalued company. A discounted cash flow model also shows that it is cheap even after the firm boosted its payouts to investors to boost its price. As such, the next two weeks will be important because the firm will publish its trading statement on April 13. Analysts expect that the firm’s revenue will grow gradually from £61 billion to £63.1 billion in the next three years. 

So, is Tesco a good investment? Tesco has an important role in the UK, where it serves millions of people every month. It is a beloved company that has consistent growth and excellent supply chains. Most importantly, it has a steady dividend, whose yield is 3.62%. 

Tesco share price forecast

Tesco stock price has crawled back in the past few days. As a result, it has formed a small ascending channel that resembles a bearish flag pattern. A sharp decline usually follows this pattern in price action analysis. Therefore, while Tesco is a good stock, it is possible to have a bearish breakout in April. If this happens, the next reference point will be at the YTD low of 265p.