The Tesco share price is hovering near its highest level since March 2020 even as UK retailers face significant challenges. The TSCO stock is trading at 255p, which is a few points below its year-to-date high of 260p. The shares have risen by more than 27% from their lowest level in November.
Tesco faces significant challenges
Tesco is a leading British retailer that operates thousands of stores. The company is well-known for its groceries, fuel, and banking operations.
Like most UK retailers, the company’s shares have done well as interest of UK sellers rise. For example, Asda has been bought by a group of private equity companies. As we speak, another group is negotiating a deal to acquire Morrison’s, the third-largest retailer in the country.
And, there are rumours that companies like Sainsbury’s and Marks and Spencer could come into play. Therefore, this demand has led to more demand for Tesco and its peers.
Still, Tesco faces significant challenges ahead. First, the company is facing the challenge of labour shortage because of Covid. Recent data showed that more than 1.3 million Britons are currently receiving furlough payments and millions more are staying at home. And according to estimates, the labour shortage could continue for at least two more years. This will likely lead to a higher cost of doing business.
Second, Tesco is facing the challenge of a slowing UK economy. Data published by the Office of National Statistics (ONS) showed that the economy is still about 2% below its pre-pandemic levels. A slowing UK economy could impact Tesco, which mostly does its business internally.
Finally, the Tesco share price could be impacted by the rising supply shortages. In a report today, the Food and Drink Federation said that supermarket shortages will get worse. In a statement, Ian Wright of the federation said:
“But what is changing now is that the UK shopper and consumer could have previously have expected just about every product they want to be on a shelf or in the restaurant all the time. That’s over, and I don’t think it’s coming back.”
Tesco share price forecast
The daily chart shows that the Tesco share price has been in a bullish momentum lately. Along the way, the stock managed to move above the key resistance level at 250p, which was the highest level since January 27. The shares remain above the 25-day and 50-day moving averages.
Therefore, I suspect that the TSCO shares will form a break and retest pattern in the near term. This is where it drops and retests the key support at 250p and then resume the bullish trend.