News & Analysis

What is the investors beef? TESCO shares lowest in 5 years despite incredible revenues

Andrew Saks, Friday, 18 June 2021

Despite its stellar performance over the past quarter, British supermarket giant TESCO, whose shares are listed on the London Stock Exchange and are part of the prestigious FTSE 100 index, has fallen out of favour with investors and traders.

The company reported an astonishing £10 billion in sales revenue in the three months ending May 31, 2021, and online sales continued to grow by a rather unsurprising yet spectacular 22%, however the supermarket chain's share price has declined considerably.

Whilst it is unlikely that the stock is less attractive as a result of TESCO's perceived low quality compared to its rival supermarkets, the days of the customer service surveys marking the blue-and-white giant down on everything from how its anodyne stores appear to the quality of its food and service are largely gone.

It was as long ago as 2013 when TESCO was at the bottom of the table of the nine major supermarkets, scoring just 45% and receiving poor marks for its pricing, store environment, quality of fresh produce and customer service, and since then the firm has expanded even further, despite it having been the largest supermarket chain in Britain for many years.

It may well be that many consumers are not partial to insipid pies or pre-packed flavourless sandwiches when asked, but their buying habits clearly demonstrate otherwise as £10 billion in revenues in just three months is remarkable especially in an environment such as Britain, where the supermarket industry is one of the most fiercely competitive in the world.

According to TESCO, the growth in sales got to its highest point in March at 14.6% and remained buoyant in April and May as restrictions eased whereas it also received 1.3 million orders per week on a nationwide basis and had doubled the capacity of its delivery operations during the entirety of the lockdown period.

Despite this, the company's stock is at its second lowest price in five years at 224.08p per share, a low previously exceeded in August 2016 when it was as low as 196.08p.

The slump all those years ago was perhaps unexplainable because it had been three years since the 2013 exposure which revealed that for those wondering where Shergar had gone could have perhaps looked no further than in their processed hamburgers that had been purchased at TESCO and incorrectly sold as being made of beef.

Memories are short, and whilst consumers were quite understandably disgusted by the mis-labelled 'beef' products in 2013, three years later there were other issues to concentrate on.

Therefore, perhaps it was the sale of coffee shop chain Harris & Hoole that caused the low five years ago. TESCO first bought a stake in the cafe chain in 2013 and took full control in early 2016. The chain had at the time 43 outlets of which 29 were within TESCO stores. For the year to March 1, 2015 it lost £21.6 million.

Harris & Hoole is still in business, however now the outlets are not restricted to TESCO stores and are also located in fashionable neighbourhoods and apartment complexes as an independent business. The only inkling that TESCO used to have a hand in it is the bland sandwiches and insipid coffee on sale.

These faux pas in the past would certainly be reasons for TESCO stock to decline in value, however the company is doing well these days, to say the least.

Therefore, the low stock price, which declined recently to its second lowest point in five years is something of an anomaly when considering the outstanding performance of the company in terms of revenue.

Wonder what the investors' beef is, or perhaps it is just a case of stock market horseplay.

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