This year has been a generally positive one for the Tesco PLC (LON:TSCO) (TSCO.L) share price in my view. It has risen by 18% and its future prospects appear to be improving.
One reason for this is the recent news concerning inflation and wage growth. For the first time in over a year, wages are growing at a faster rate than inflation in the UK. This could be good news for retailers, since it may mean that there is less pressure on household budgets since disposable income is positive in real terms.
The effect of this on Tesco’s financial performance may not be immediate. But it could help consumers to gradually become less price-conscious and start spending more than they have been doing in recent months.
It may also cause investors to become more positive towards retail stocks after what has been a tough period for the industry. With the stock trading on a PEG ratio of around 0.6, it seems to offer good value for money in my view. This could lead to further share price gains over the medium term.
Tesco seems to have put in place a solid strategy that could deliver further EPS growth in future. It is seeking to become more efficient and anticipates that its operating margin could reach 4% by 2020. Alongside 2+ years of sales growth, this could mean that it has a good chance of delivering impressive EPS growth over the medium term.
Sure, it may experience challenges from budget retailers and inflation may spike as Brexit nears. But with what seems to be a sound strategy and trading conditions which may be on the up, the stock could deliver improving performance in future.
Therefore, I’m optimistic about its capacity to deliver share price growth after what has been a positive few months for the retail stock.