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Tesco shares looks cheap at the current levels

With the expansion of competitors in the industry, it could be difficult for Tesco to regain its top position.

One of the top household names in the UK, Tesco PLC (LON: TSCO) remains at the top of the grocery market and has maintained this position for a while. The supermarket has operations across different European countries including the UK. It enjoyed its best days with high growth momentum but the company has faced trouble due to increasing competition and the pandemic. The growth of premium and low-cost supermarkets has put Tesco in a tight position.

Tesco stock has been down since January and has not gained much momentum. With the expansion of competitors in the industry, it could be difficult for Tesco to regain its top position. Tesco could be down but it is not out.

It certainly is investing into the business to improve the online channel and the group sales could surge in 2021. The stock is already down 25% in the last six months which makes it an ideal buying opportunity. Tesco stock at GBX 222 is not a bad deal.

Possibility of high revenue post-pandemic

Tesco saw a surge in demand last year due to the pandemic. It led to a rise in group sales by 7% and a rise in UK sales by 8%. It was due to the panic buying, working from home and lockdown which led to the surge in sales. The company is growing its online sales and it is proof that consumers are associating groceries with Tesco.

The economy was supposed to open in June but it has been extended by a month. Once it opens, it will be interesting to see how consumers look at Tesco. When Tesco returns to normal trading this year, it will report operating profit and high revenue. Even at the current trading level, the company has a strong balance sheet.

The competitors are in great shape and they are making the right moves to expand their position in the market. Sainsbury and Morrisons are the biggest competitors while Lidl and Aldi are opening new stores in the UK, which will only put more pressure on Tesco. This is where Tesco will have to invest and move forward. If the company manages to handle competition well, there is no looking back.

The bottom line

For the revenue and sales, a lot depends on how the lockdown eases and the economy operates for the remaining part of the year. The extra costs caused by the pandemic could be reduced to a minimum or eliminated completely.

When it comes to dividends, the company has a strong history and I believe it will continue to reward the shareholders. It also paid a special dividend to shareholders in February this year.

With a high dividend yield of 4.5%, Tesco stock is a buy for investors who are looking to enjoy passive income. It has a strong cash position which will ensure a regular dividend payout.

Tesco shares look cheap at this level and even a small upside can be profitable for investors.

Not Investment Advice Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.

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