Is this as good as it gets for the red-hot Tesco share price?

The Tesco (LSE: TSCO) share price surge caught me off guard. I just didn’t see it coming.

If Hollywood turned the UK grocery sector into a gangster movie, Tesco would be Mr Big, with young guns Aldi and Lidl eyeing up its territory. Yet somehow, Mr Big stood his ground.

Today, Tesco’s position looks pretty impregnable, with market share of 28.5% the highest since 2016. That’s a satisfactory ending for Tesco investors. Especially with the shares up 24% over the last year, and 48% over five years. Dividends are on top, of course.

Sadly, I missed out on all of that. I just didn’t think Tesco could do it. So can the shares climb from here?

This is a top FTSE 100 dividend growth stock

Let’s look at the fundamentals. Tesco’s current price-to-earnings ratio’s just over 15, squarely in line with the FTSE 100 average.

While this isn’t alarming, it isn’t particularly cheap. And when it comes to dividends, the yield’s dipped to 3.28%, just below the FTSE 100 average of 3.5%. For income-focused investors, that might be a touch underwhelming.

I suspect I won’t be the only investor looking at those numbers and thinking the fun’s over. That may explain the lukewarm market response to a positive Christmas trading period. Tesco reported a 3.7% sales increase across the UK and Republic of Ireland, covering the six weeks to 4 January. This marked an improvement from 2.8% in Q3. Sales grew even faster at its Central Europe’s operations, up 4.7%.

The board now expects full-year retail adjusted operating profit of £2.9bn, in line with guidance upgraded in October.

CEO Ken Murphy hailed “our biggest ever Christmas, with continued market share growth and switching gains”. He pinned this on Tesco’s strategy of being the UK’s cheapest full-line grocer for over two years, as well as introducing new or improved products across its ranges.

The supermarket war isn’t won yet

Yet Tesco shares slipped 1.5% on the day and have idled since. This may simply be profit taking. Investors have done well out of Tesco. But it may also suggest they see better opportunities elsewhere.

If I held Tesco shares, I’d stick with them. It would be rude not to frankly, given how well they’ve done. But would I buy? That’s a tricky one. Firstly, it feels like I’ve missed my best moment. Second, all the other grocers are still gunning for Mr Big.

Tesco employs more than 300,000 and will take a hit from the government’s £25bn raid on employers’ National Insurance, plus its inflation-busting Minimum Wage increase. It already operates on wafer-thin margins.

If inflation falls, that may soften the blow. Plus of course, its rival grocers have to face the same issue.

I won’t buy Tesco shares today. They look fully valued while the UK economy remains bumpy, making shoppers feel poorer. It has a lot to live up to. I’ll go shopping for shares elsewhere.

The post Is this as good as it gets for the red-hot Tesco share price? appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.