Tesco is a household name for grocery shopping in different parts of the world. As with most industries, the pandemic dealt a heavy blow to retailers, including Tesco. However, with the post-pandemic recovery mood in the market, Tesco offers an opportunity to bargain hunters. In this regard, we have created this post as a guide to investors who wish to buy Tesco stock. The guide takes a look at Tesco's history, profile, business models, and revenue streams.
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Learn How to Buy Tesco Stocks in 3 Easy Steps
Find a broker
To buy Tesco stocks, you need the services of a professional brokerage or online trading platform. Full-service brokers come with the added advantage of offering professional investment advice and active account management. Trading platforms, on the other hand, have the advantage of being cheaper.
Analyze the Tesco stock price chart
Analyzing the stock price chart gives clarity to your trading decisions. You can analyze the stock by comparing its performance against its sector index and the broader market index. You can also use the price chart to identify support and resistance zones, which enable you to time your entry and exit.
You can trade Tesco shares in a variety of ways. You can decide to day trade. Alternatively, you can swing trade by holding your position for weeks or months; or invest and hold the stock for years. Whichever way you choose, make sure you have a plan.
Tesco company overview
Though the first Tesco shop opened in 1931, the grocery store originally started as a group of market stalls in 1919. The owner, Jack Cohen, came up with the name after he purchased a shipment of tea from T. E. Stockwell. Cohen then combined the three initials with the first two letters of his surname.
Tesco expanded rapidly, and by 1939, the company had over 100 Tesco shops across the United Kingdom. Since the early 1990s, Tesco has expanded globally, with operations in 11 other countries, becoming the first British supermarket to do so.
Since starting as a grocery store, Tesco has diversified into merchandise, retailing books, clothes, electronics, furniture, toys, petrol, software, financial services, telecoms, and internet services.
Tesco is the market leader for groceries in the UK, controlling 27.3% of the market, well ahead of second-placed Sainsbury’s at 15.3%. Tesco is also the ninth-largest retailer in the world by revenues. The company pulled out of the US in 2013 due to failure to apply the results of their 2-year research on the American market, which resulted in the company being disconnected from its target market.
Tesco got listed on the London Stock Exchange in 1947 and is a constituent of the FTSE 100 Index. The company currently has a market capitalization of approximately $17.32billion
Tesco business model and revenue streams
Tesco describes its business model in a pretty straightforward manner: buy, move, and sell products and services to customers and use customers to get insight on how to do a bit better the next time.
Tesco’s business model is focused on three core areas: customers, products, and channels. The company identifies customers as the pillar of its business model and, as such, invested in channels that would improve communication and provide insights about customers' tastes and preferences.
Through its loyalty card, Tesco harvests data about customers' shopping patterns, which are used to categorize shoppers based on their needs and preferences. By looking at its operations through its customers' eyes, Tesco has been able to change the way it engages its consumers.
Lately, the retail giant has been moving towards e-commerce in line with Amazon’s model, which is indicative of the company’s awareness of the technological revolution of retail shopping. This has informed the company's decision to purchase We7, a music streaming company, for a relatively modest amount of £10million.
In terms of revenue streams, the bulk of cash comes from its retail stores. Its price differentiation and market segmentation strategies have endured, so much so that Tesco maintains a dominant share of the UK market. The adoption of eCommerce opened up lots of opportunities for Tesco, especially during the pandemic, as many customers isolated indoors had little choice but to place their orders online. Tesco saw first-half profits of fiscal 2020 rise by more than 25% as customers bought more food during the pandemic and online orders doubled.
Most of Tesco's revenue is generated from its major market — the United Kingdom. While sales from its stores in other European and Asian countries brought in some profits, the significant chunk of revenue is from within the United Kingdom and Ireland. In the 2020 fiscal year, Tesco generated £45.7m from its UK and Ireland market, while its international market generated only £10.6m.
History of Tesco
At the end of the first world war, Jack Cohen, a former Royal Flying Corps, began his grocery and merchandise business by selling surplus groceries from a stall in London's East End. He used his demobilization funds to buy the first day's stock making a profit of £1 on sales of £4.
Cohen came up with the name Tesco six years later after purchasing a shipment of tea from T. E. Stockwell. Cohen then combined the three initials with the first two letters of his surname. That same year, Cohen acquired a plot of land at Edmonton, north London, to build a new headquarters and warehouse, making it the first modern food warehouse in the United Kingdom. The ability to store inventory led to greater stock control and reduced prices for customers. This led to further expansion in the 1930s when Tesco opened up branches across London and neighboring counties.
In 1946, Tesco launched self-service stores, an idea Cohen got when he visited the United States. In 1947, Tesco got listed on the London Stock Exchange, with a share price of 25 pence. During the 1950s and 1960s, Tesco expanded organically, acquiring more shops which, by then, were more than 800. Tesco also started selling household goods in its stores. In 1968, the company opened its first 'Superstore,' a supermarket sitting on 40,000 sq. ft. in Crawley, West Sussex.
Tesco diversified further in 1973, moving into petrol sales by introducing petrol stations at important sites. In 1979, Jack Cohen passed away, marking the end of an era for Tesco. The 1980s were spent on advertising and marketing campaigns to lure shoppers into Tesco stores through discount prices and checkouts.
It was not until 1995 that Tesco expanded overseas with stores opening in Hungary. Within a decade, Tesco opened stores in the Czech Republic, Slovakia, Poland, Ireland, Thailand, Malaysia, and India. In 1997, Tesco launched the Tesco Personal Finance, a savings account which exceeded expectations as over 300,000 applications were received, and in 1998, it launched Tesco Finest which was aimed at more affluent customers.
In the year 2000, recognizing the fast weeping changes that technology brought to the retail industry, Tesco went online. Tesco launched its fast-fashion brand Florence & Fred (F&F) in 2001, and in 2002, the company bought the UK's second-largest convenience store chain, One Stop, while in 2003, Tesco Mobile was launched.
Tesco has also been associated with several community social responsibility projects. It launched the Tesco Food Collection, UK’s largest food collection, in 2012. The project encourages customers to donate long-life food to charity and vulnerable people in need. In 2015, Tesco launched the Bags of Help scheme, which charged 5p per bag charge in England, Scotland, and Wales, and the funds from the initiative were used to fund projects to improve green spaces and environmental awareness in local communities. That same year, Tesco partnered with food redistribution charity FareShare to provide free, surplus food to local charities and communities every day. In 2016, the company started the Free Fruits for Kids project to create healthy eating values in kids.
Brokers that offer Tesco shares
There are a variety of brokers that offer shares of Tesco. You may choose a full-service broker or opt for discount brokers, depending on your investment goals and objectives. We have compiled a list of the best brokers offering Tesco shares in the table below.
Should I invest in Tesco stock?
Tesco shares seem fairly priced today, trading at about 12.5 times forward earnings. It is a good stock you can consider to add to your investment portfolio.
Tesco stock investment potential
In the last five years, Shares of Tesco have outperformed the FTSE 100 index. While the stock has gained more than 50%, the FTSE 100 has appreciated by just 12%. Investors also see Tesco as a dividend and value stock rather than a growth stock. The company is innovative and has been diversifying into new areas away from its traditional grocery and merchandise ecosystem.
However, a significant source of concern is the competition from Amazon, which has already made an entry into the food delivery business by acquiring Deliveroo. However, given its foothold in the UK market, plus its diversification and price differentiation strategy, Tesco looks like a stock that would be able to ward off the stiffest of competitions.
What kinds of investors should include Tesco stock in their portfolios?
Tesco appeals more to long-term value investors who seek dividends on their capital rather than share price growth. The company recently sold its business in Thailand and Malaysia for £8.2bn, and the proceeds from the sale would be paid to investors through a special dividend and share consolidation of £5bn. The company has also shown a culture of reinvention and has a knack for identifying changing consumer shopping trends. This makes Tesco share look attractive as a long-term investment.
How much should I invest in Tesco?
How much one can invest in Tesco depends on a combination of unique factors, such as the availability of capital, investing experience, brokerage fees, commissions, and timeframe for investment. However, the general rule of thumb is to invest only what you can afford to lose. Most experts advise that you invest 2% or less of your investment capital in one stock.
How to buy shares in Tesco stock?
Here are the steps you can take to buy shares in Tesco:
Find a good broker: Get a broker that has access to the LSE, is permitted in your country of residence, has good security features, and offers low transaction costs.
Open your brokerage account: Create a brokerage account with your chosen broker. You will be required to provide your personal information and KYC documents, such as your ID and proof of address.
Fund your account: You will need to fund your brokerage account before you can trade Tesco stocks. There are various ways to fund your account depending on your country of residence and the payment channels accepted by the broker.
Start trading Tesco stock: After your account has been funded, you can start trading Tesco stock. It would be best if you had a well-detailed trading strategy before executing any trade. Conduct the necessary technical analysis to determine when to enter and exit the stock.
Buy Tesco shares using a broker
You can buy Tesco shares from a variety of brokers, but the process is somewhat the same. Log into your trading account, search for Tesco using the appropriate ticker (TSCO.L). When you click on the stock, the relevant information would be displayed on your screen, including current price, company profile, price chart, among other things. You can place a market order or a limit order. When your trade has been registered, you would see the appropriate amount of units you purchased displayed on your screen dashboard.
Buy Tesco shares with a direct stock purchase plan (DSPP)
The direct stock purchase plan enables investors to buy shares directly from the company instead of going through the broker. However, Tesco does not have a DSPP for its shares.
Frequently Asked Questions
The stock is set to benefit from the post-pandemic market recovery.
Yes, the company runs a profitable business model.
Yes, you can.
There is no best platform to trade Tesco stock.
Shares of Tesco are traded between 9 am and 4 pm London Time.
London Stock Exchange.