Tesco share price has retreated for 8 weeks: don’t buy the dip

Tesco (LON: TSCO) share price has come under relentless pressure after peaking at 278p in May this year. The shares have pulled back by ~11.78%, meaning they have moved to a correction. They have also dropped in the past eight weeks straight, the first time since 2014.

UK retailers and the cost of living crisis

The UK is going through major headwinds as the cost of living escalates. Inflation stands at 8.7%, the highest level in the developed world. Bond yields have gotten so inverted and the country is staring at a major water crisis. In a statement, the country’s water regulator said that Thames Water will likely need at least 1 billion pounds as its debt burden escalates.

Tesco, the biggest British retailer, is having slow growth as these concerns continue. In June, the company said that its retail revenue in the first quarter came in at 14.83 billion pounds, a 8.7% increase. Most of this growth came from ROI and UK business. Its group revenue jumped by 8.8% during the quarter.

A key challenge for Tesco is that its margins are really thin. One of the reasons is that the company is overstaffed. The company has over 330k employees compared to Home Depot’s 490k. Tesco has a market cap of $22 billion compared to Home Depot’s $311 billion. 

Similarly, Target, which has a market cap of $62 billion has 440k workers while TJX has 270k employees. TJX is the eighth biggest retailer in the world. As a result, Tesco has a gross margin of 6.43% compared while companies like Kroger, Albertsons, Target, and Walmart have over 20%. It has a net income margin of 1.13% while these other firms have a margin of almost 2%.

Tesco share price forecast

TSCO chart by TradingView

The weekly chart shows that the TSCO stock price has been in a strong bullish trend in the past few months. This recovery saw it reach to a high of 277.2p in May. This price was notable since it was the highest point in 2022.

Tesco share price has formed a double-top pattern, whose neckline is at 190.20p. In price action analysis, this pattern is usually a bearish signal. On a positive sign, the shares remain above the 50-week and 100-week moving averages.

Therefore, more upside for the stock will be confirmed if the shares move above the double-top part of 277.2p. Before then, it is highly risky to buy the stock.