Tesco share price is recoiling. Should you buy the TSCO dip?


Crispus Nyaga

Jun 17, 2022

Tesco share price has been in a strong bearish trend.

The company published weak quarterly results.

The sell-off will likely continue as the retail sector weakens.

The Tesco (LON: TSCO) share price is in a steep sell-off as the retail industry continues struggling. The shares are trading at 248p, which is about 16% below the highest level this year. Other retail-focused stocks like Asos, Boohoo, Sainsbury, and Next PLC have all crashed.

Tesco growth slows

Tesco is the biggest retail operator in the UK, with thousands of stores in the country. Like all companies in the sector, it is going through significant challenges as the cost of doing business surges. Growth has also declined radically in the past few months.

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In a statement, Tesco said that its total revenue in the third quarter rose by 2% to 13.57 billion pounds. Its UK retail business saw its revenue drop by 1.5% to 9.8 billion pounds while ROI saw its growth crash by 2.4%. In a statement, the company’s CEO said:

“Although difficult to separate from the significant impact of lapping last year’s lockdowns, we are seeing some early indications of changing customer behaviour as a result of the inflationary environment.”

The report came a day after Boohoo and Asos warned that their business were seeing strong weakness as the cost of doing business crashed. 

It also came a few months after American retailers like Tesco and Walmart warned about the challenges their businesses are facing. Tesco accumulated so much inventory that it is now considering giving out discounts. These companies also announced that they had over-hired during the pandemic.

These numbers come at a time when the UK has seen a substantial increase in inflation. Data published showed that the headline consumer price index jumped to a multi-decade high of over 9%. Therefore, there is a possibility that demand for products will continue slowing in the coming months.

Tesco share price forecast

The daily chart shows that the TSCO share price has been in a strong sell-off. It is trading at 248p, which is slightly above the key support at 242p. It remains below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved below the neutral point at 50.

Therefore, the stock will likely keep falling as bears target the next key support level at 220p. A move above the key resistance level at 260p will invalidate the bearish view.

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