The Tesco (LON: TSCO) share price collapsed by more than 6% on Wednesday after the company warned about margins. The stock fell to a low of 251p, which was the lowest level since October 6, 2021. It has fallen by more than 16% below its highest point this year. Other UK retail stocks like Sainsbury and Ocado also crashed, becoming the worst performers in the FTSE 100.
Tesco profit warning
Tesco is a leading retailer in the UK valued at more than 20 billion pounds. The company operates hundreds of stores in the country and is often compared with Walmart and Kroger.
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In a trading statement on Wednesday, Tesco said that it expects that its profit will decline this year because of the soaring costs. It estimates that its operating profit will be between 2.1 billion pounds and 2.6 billion pounds. This was lower than what it had guided in the most recent quarter.
Nonetheless, Tesco had a strong performance in 2021 as consumer spending jumped. Its total revenue rose by 6% to over 61.3 billion pounds. Its pre-tax profis rose from £1.1 billion in 2020 and £2.2 billion in 2021. This is in line with what I predicted last week.
Tesco and other retailers are facing significant challenges. For example, data published on Wednesday showed that the UK consumer and producer inflation jumped to the highest level in more than 4 decades. It warned that inflation could soar to about 10% this year as the crisis in Ukraine continued.
Tesco is also struggling because of the ongoing supply chain challenges. It is now having to pay more for its imports and logistics. It has also been forced to pay wages to its employees.
Still, Tesco has some positive features that make it more attractive to investors. Thanks to its scale, the company will likely emerge faster than other retailers.
Tesco share price forecast
The daily chart shows that the TSCO stock price has been in a strong bearish trend. A closer look shows that the stock formed a bearish flag pattern that is shown in purple. This pattern is usually a bearish signal. It has also moved below the 25-day and 50-day moving averages while oscillators have been in a strong downward trend.
Therefore, there is a likelihood that the Tesco share price will continue falling as bears target the key support level at 200p.
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Source: https://invezz.com/news/2022/04/13/tesco-share-price-plummeted-has-it-become-too-cheap-to-ignore/