Wednesday 8 May 2013

Analysis of Tesco

An UK food and retail chain that are expanding

Company: Tesco

Business: Food and retail chain with its starting base in the UK.

Active: Today they are present in 14 countries and have half a million employees.

P/E: 10.5

The P/E of Tesco is 10.5 which is a very good start! The price to book is also very good with 1.7 which gives according to Grahams formula 17.5 which means that Tesco is a real buy! the earnings per sale is just like Wal-Mart 4% which means that they at least have the same margins as Wal-Mart has. the book to debt is also acceptable with a ration of 0.54. When we look back in at the last five years they have managed to have a growth of 6%. This is double compared to Wal-Mart! Which gives according to Lynch and Graham a motivated P/E of around 20 which means the stock is today valued half of what it should be. They pay a fully acceptable dividends of 4% and this is 43% of the earnings which I also consider to be acceptable for a company with a below 10% yearly growth. I was not happy with their quarter reports though which is why it is only calculated over the year.

Conclusion: Tesco is a good buy today and by the look of everything it is much better than Wal-Mart that seems to have stopped their expansion slightly. I will look into if I should not buy this once I get my next salary.

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