Tesco shares are down 24% YTD. Should I invest?

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on Oct 29, 2020
Updated: Oct 30, 2020
  • Tesco increased the interim dividend by 20.8% Y/Y
  • Tesco will add 16,000 new permanent jobs to cater to the exceptional growth in its online business
  • If the price falls below $2.5 that would be a “sell” signal and we have the open way to $2.3

Tesco (OTCMKTS: TSCDF) shares have weakened from $3.48 below $2.3 in less than several months and the current price stands around $2.6. Tesco is positioned to weather the COVID-related storms but if the price falls below $2.5 that would be a “sell” signal.

Fundamental analysis: Tesco will add 16,000 jobs to cater to the exceptional growth in its online business

Tesco is a British multinational groceries and general merchandise retailer with over 3400 stores nationwide. Tesco employs over 450,000 employees across 11 markets and it is important to mention that Tesco has more than 42 million transactions per week in the UK.

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Even with the COVID-19 pandemic, the business of Tesco is going well and the company will probably have a rise in revenue for the next fiscal year. Tesco has released recently H1 earnings results, total revenue has increased by 0.7% Y/Y while retail operating profit increased by 4.4%.

The company increased the interim dividend by 20.8% Y/Y which is in-line with its policy of setting an interim dividend at 35% of the prior year full-year dividend. Tesco started to offer free grocery delivery in the U.K. and the main idea behind this is to protect market share against Amazon.

According to the latest news, Tesco will add 16,000 new permanent jobs to cater to the exceptional growth in its online business and may even increase the number if the coronavirus lockdown boosts its sales even more. Tesco’s stock is attractively valued currently and according to analysts, this company is positioned to weather the COVID-related storms.

This stock could be a good long-term investment but maybe now is not the best moment for buying Tesco shares because the price could weaken even more in the upcoming weeks.

Technical analysis: Bears are focused on breaking the support level at $2.5

When trading Tesco shares, you should have in mind that the price could weaken even more in the upcoming weeks.

Data source: tradingview.com       

On this chart, I marked important resistance and support levels. The important support levels are $2.5 and $2.3, $2.8 and $3 represent the resistance levels.

If the price jumps above $2.8 it would be a signal to buy this stock and we have the open way to $3. Rising above $3 supports the continuation of the bullish trend and the next price target could be located around $3.3 or even $3.5.

On the other side, if the price falls below $2.5 it would be a “sell” signal and we have the open way to $2.3.

Summary  

Even with the COVID-19 pandemic, the business of Tesco is going well and the company will probably have a rise in revenue for the next fiscal year. Tesco will add 16,000 new permanent jobs to cater to the exceptional growth in its online business and may even increase the number if the coronavirus lockdown boosts its sales even more. My opinion is that this stock could be a good long-term investment but maybe now is not the best moment to invest in Tesco shares because the price could weaken even more in the upcoming weeks.

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