FTSE 100
Tesco (TSCO) share price has been under intense pressure since last week, when it delivered strong quarterly results. It is trading at 211.7p, which is lower than last week’s high of 225p.
Tesco released relatively better results. The company’s made more than £26.7 billion in revenue and more than £1 billion in operating profit. Its profit before tax came in at £551 million, beating what analysts were expecting. The firm also saw its online sales jump by 69%. As a result, the management decided to increase its dividend by 21%.
So, why is Tesco share price tumbling even after the company released strong results? Three reasons. First, investors are concerned about the rising costs as the company invests more money on its retail stores. For example, it has had to increase its employees with the goal of making delivery faster for customers. As such, while the firm has a sizable online business, the margins are relatively smaller.
Second, the market is concerned about whether the company can maintain the revenue growth as the unemployment rate rises. Third, another key concern for Tesco – and other UK supermarkets – is the rise of German discount chains like Aldi and Lidl. These firms have continued to gain market share at the expense of predominant UK retailers.
Still, while Tesco is facing intense pressure, analysts believe that it has some positive catalysts. Among the notable ones is that the company can monetise its online business more by allowing companies to advertise their products. In the United States, Amazon has created a substantial ad business by letting firms to pay to appear on top. In a recent note, analysts at UBS said that such a move would help the firm boost its digital business.
So, is Tesco a good investment? Analysts remain optimistic about the company. Those at Shore Capital reiterated their buy rating whole those at Morgan Stanley expect the shares to jump to 276p.
Tesco has been an underperformer this year even after selling some of its international businesses, boosting sales, and raising its dividend. On the daily chart, we see that the price is below the middle line of the Donchian channel. It is also below the 15-day and 30-day exponential moving averages. It is also below the descending trendline shown in green.
Therefore, I suspect that the price will continue falling as bears aim for the next support at 207p. On the flip side, a move above the middle line of the Donchian at 215p will invalidate this trend.
