The Tesco share price staged a strong recovery in August as demand for UK retail shares rebounded. The TSCO stock jumped by more than 10% in August. It even managed to jump to the highest level since May 2020. Other retailers like Morrisons, Marks & Spencer, and Sainsbury’s also rocketed, as shown below.
There are several reasons why the Tesco share price jumped in August. First, investors cheered the ongoing interest in key UK retailers. In August, Morrison’s got a higher bid from CDR, the giant private equity firm.
At the same time, there was speculation that Sainsbury’s would be acquired by a private equity firm like Apollo. There were rumours that the firm would offload its struggling banking arm. Therefore, all these events led to a major demand for Tesco and other retailers.
Investors also believe that Tesco could also become an acquisition target because of its relatively modest valuation compared to its American peers. There have been chatter that Amazon, the biggest e-commerce company in the world by market cap, could place a bid for the firm.
Meanwhile, there are expectations that the company will maintain its current growth as the UK economy reopens. Still, there are substantial risks for Tesco and other retailers. The most important one is that costs are increasingly rising in the UK and other countries. As a result, it will likely be forced to hike prices, which could drag its profits.
Another cost concern is that the company invested vast resources to grow its e-commerce platform. Now, with the trend in e-commerce slowing, there is a possibility that the firm will keep suffering from these costs. August will be a relatively muted month for Tesco. Its next key earnings release will happen in October.
The hourly chart shows that the Tescos share price has held steady in the past few weeks. Along the way, the stock has managed to move above the key resistance levels at 236p and 240p. These were the highest levels on April 9 and July 8, respectively. It has also moved above the 20-day and 50-day moving averages while key oscillators have been on a strong bullish trend. Therefore, the stock will likely keep rising as bulls target the next key resistance at 270p. However, we can’t rule out a pullback to the support at 240p in August.