What needs to happen for the Tesco share price to reach £5?
Over the last 12 months, the Tesco (LSE:TSCO) share price has delivered some impressive gains, climbing 27% to just over 400p. Thatâs almost three times what the FTSE 100 has delivered over the same period. But can Britainâs largest supermarket continue to climb from here, potentially even reaching £5 per share?
The possibility of a £5 share price
The last time Tesco shares were trading around the 500p mark was all the way back in 2011. And compared to where the stock is today, Tescoâs market-cap needs to expand by around 25% to hit this threshold once more. While that doesnât seem like a major ask, few analysts think it can be delivered in the next 12 months. In fact, the most optimistic broker forecast right now is 440p.
However, for long-term investors looking beyond 2026, there are a few encouraging factors that could make this a reality.
What Tesco needs to do
On an adjusted basis, Tesco shares are trading close to 8.5 times underlying earnings. Assuming this price-to-earnings ratio remains constant, that implies the supermarket needs to boost its adjusted operating profits to grow by roughly £750m to justify a 500p price tag. And as I see it, there are main two ways management can achieve this.
The first is to simply sell more by attracting more shoppers through its doors with its Clubcard and price-matching schemes, taking market share in the process. However, the second, and arguably more effective method, is to expand its range of premium offerings.
Tescoâs Finest has proven to be a solid growth engine for the business, climbing by 15% to £2.5bn in its 2025 fiscal year (ending February) before accelerating to 18% in its subsequent quarter.
While thatâs a tiny piece of overall revenue, itâs a much more profitable one. And with management seemingly doubling down on its strategy of expanding this product range, delivering an extra £750m in underlying profits could take as little as two to three years based on the current earnings trajectory. As such, investors may see the Tesco share price hit 500p by as early as 2027.
What could go wrong?
While Tesco has delivered some solid results of late, the competition isnât sitting idle. Threats of a new pricing war from Asda already caused some tension earlier this year. And in response, management cut its full-year profit guidance for FY2026 to temper expectations.
Combining this with other incumbent players seeking to steal back market share from Tesco, the timeline to reaching £5 could end up being longer than expected. And this would seem even more likely if the firmâs 21-quarter streak of market share gains comes to an end.
Thereâs also the economic environment to consider. Even if Tesco continues to outmanoeuvre its competition, a weak consumer spending environment can still make growth challenging, especially for higher margin premium-priced products.
The bottom line
Tesco seems to have promising potential and is worth considering. And while there’s a big question mark over timing, 500p doesnât seem unreasonable as a long-term share price target if the company continues to take market share. At least, thatâs what I think.
The post What needs to happen for the Tesco share price to reach £5? appeared first on The Motley Fool UK.
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Zaven Boyrazian 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.
