Tesco share price has been in a strong bearish trend in the past few months as concerns about demand remain. The shares plunged to a low of 199p, which was the lowest level since January 2019. It has plunged by more than 31% in 2021, which is in line with the performance of the SPDR Retail ETF, which has plunged by 30%.
Change of fortune for Tesco
Tesco, the biggest retailer in the UK, has had a tough performance in 2022 as the soaring inflation impacts consumer spending. The most recent results showed that the company’s total sales rose by just 3.1% in the first half of the year to 28.1 billion pounds.
Adjusted operating profit crashed to more than 1.3 billion pounds while the company’s retail free cash flow fell by 16.9% to over 1.23 billion pounds. In the report, the company’s CEO said that:
“Customers are seeking out the quality and value of our own brand ranges as they work to make their money go further, whether they are switching from branded products, between categories or cutting back on eating out.”
Tesco share price has also collapsed because of the weak British pound. A falling pound is both inflationary since Tesco imports most of its products. It also makes it more expensive for people when buying.
Therefore, with inflation soaring, customers have been reducing the number of products they are buying. At the same time, the ongoing lack of confidence of the UK economy has made more investors to flee UK stocks. The crisis started when the government announced its mini-budget that had over 45 billion pounds worth of tax cuts.
Therefore, Tesco is fighting multiple battles at once. Competition, especially with Aldi, is rising, inflation and the cost of doing business has surged, and profits are expected to continue falling. On a positive side, the falling pound has made it an attractive buyout target, especially among moneyed American private equity firms.
Tesco share price forecast
The daily chart shows that the Tesco stock price has been in a strong bearish trend in the past few months. It is now forming a bearish flag pattern, which is usually a bearish sign. In price action analysis, this pattern is usually a bearish sign. It has fallen below all moving averages while the MACD has moved below the neutral level.
Therefore, the stock will likely continue falling as sellers target the next key support level to watch will be at 180p. A move above the resistance level at 210p will invalidate the bearish view.