Up 23% in 2025, are Tesco shares still capable of providing attractive returns?

Tesco (LSE: TSCO) shares have had a great run in 2025. Year to date, they’re up about 23%.

Are the shares still capable of providing attractive returns after this double-digit percentage move up? Let’s take a look.

Fully valued today?

Looking at analysts’ earnings forecasts here, I see Tesco shares as fully valued at present.

For the year ending 28 February 2026, analysts expect the company to generate earnings per share (EPS) of 28.4p. So, at the current share price of 453p, we have a price-to-earnings (P/E) ratio of about 16.

That ratio is above the FTSE 100 average (about 13.5). And it’s relatively high for a supermarket.

Return potential

That said, just because a stock is fully valued doesn’t mean it can’t deliver good returns for investors. If earnings rise and the company pays out dividends, returns can be still attractive.

Going back to analysts’ earnings forecasts, EPS next financial year (starting 1 March 2026) is expected to rise 11% to 31.5p. So if the P/E ratio here was to remain steady (or rise) over the next 12 months, we could be looking at decent growth in the share price in the medium term.

As for the dividend yield, it’s about 3.2% today. So investors would only need a 6.8% jump in the share price to obtain a 10% total return over the next 12 months.

Earnings outlook

So, the key question is – can Tesco match analysts’ expectations and deliver solid earnings growth over the next year?

I think it can.

One reason for this is that Tesco has been winning back market share recently and generating solid top-line growth. At the start of November, its market share stood at 28.2% versus 27.7% a year earlier.

Tesco’s strategy of matching the prices of Aldi on many items is one factor driving the increase in market share. Heavy promotion of its Clubcard loyalty scheme (and a deterioration in Asda’s rewards scheme) is another.

Looking ahead, share buybacks could also help to boost earnings per share. Last month, the company announced the continuation of its existing £1.45bn buyback programme.

Of course, there are factors that pose a threat to Tesco’s near-term earnings growth. These include intense competition from rivals (Asda’s aggressive price reductions is something to monitor), consumer spending patterns, rising costs, and increased investments in technology.

On balance though, I’m optimistic about the potential for solid earnings growth in the medium term.

Solid potential but better opportunities in the market?

So in conclusion, I believe Tesco shares are still capable of providing decent returns from here. With a dividend yield of 3.2% and healthy earnings growth projected, there could be solid returns on the cards.

That said, I won’t be rushing to buy them for my own portfolio. Looking across the market today, I think there are better opportunities out there right now.

The post Up 23% in 2025, are Tesco shares still capable of providing attractive returns? appeared first on The Motley Fool UK.

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Edward Sheldon has no positions in any 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.

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