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Tesco (LSE: TSCO) shares hit the skids in mid-March. And by the time the UK’s biggest supermarket chain posted full-year results on 10 April, we were looking at a 20% fall from February’s 52-week high. That included a 6% drop on the day of the results, which were mixed at best.
But anyone who invested £10,000 on that day could already be looking at an investment worth £11,780. What can we learn from that?
I’m becoming increasingly convinced that UK investing sentiment might be turning to a new rule of thumb for disappointing news days: sell first, think later. And that suggests ‘buy on the dips’ might not be a bad tactic — with some key cautions.
Short-term gloom
The global trade shock set in motion by US President Trump’s tariff policies hit the outlook for economies globally. Tesco doesn’t sell in the US, so it shouldn’t be directly affected by any recession that might happen there — as economists are increasingly warning could happen. But trade wars would affect the UK economy too, and that’s bad news.
And in the UK, Tesco spoke of “a further increase in the competitive intensity of the UK market“. It seems supermarket price wars are on again. The company now expects “adjusted operating profit of between £2.7bn and £3.0bn” in the 2025/26 year, compared to the £3.1bn reported for 2024/25.
Market share
The latest data from Kantar in April showed a further slowing in supermarket sales growth. And it’s times like this that give the cut-price sellers the edge and help them claw back market share from the big operators, right? Well, wrong, it seems. Against a background of weakening sales across the sector, Tesco has increased its market share to 27.9% of the UK’s groceries market.
Smaller and nimbler firms might be able to capture the headlines from time to time. But you know what the market leaders have? They have the financial muscle to fight it out and emerge as winners. How often has Tesco been written off in the face of UK newcomers like Lidl and Aldi? So far, the rumours of its demise have been exaggerated every time.
What should we do?
Does the idea of buying on the dips sound dangerously close to trying to time the market? Well, buying just because a share price has fallen can be a risky thing to do. And history shows that investors who try to predict the dips tend to end up losing money, a fair bit of it in trading costs.
But if we’ve already done our research on a company? And we decide we like its long-term prospects and are thinking of buying anyway? That’s when we can use price dips to our advantage.
Tesco is on an undemanding forward price-to-earnings (P/E) ratio of 15, dropping to 12 by 2027 on current forecasts. The 3.6% forecast dividend yield might not be the FTSE 100‘s biggest. But it’s decent and I expect it to be progressive in the coming years.
Tesco is still one I think long-term investors should consider, especially on any further dips.
