2014 was a tumultuous year forTesco(LSE: TSCO), and one the retailer would rather forget.
Indeed, falling sales, an accounting scandal and a management shake-up all hit the company hard. At one point, the groups shares had collapsed by more than 50% from the high of 330p per share, reported at the beginning of the year.
However, over the past six months Tescos shares have rebounded. Year to date, Tesco is up 16%. At one point during the past three months, the groups shares had racked up an impressive year to date gain of 30%.
But after recent gains, have investors missed the chance to buy Tesco?
Strong gains
Tescos gains this year have been driven by the companys restructuring rhetoric. Over the past six months, there has been plenty of talk about the companys plans to cut costs, lower prices in stores and sell off non-core assets.
Management has made some progress on this front. Its believed that the companyis in the process of cutting 6,000 jobs from its headquarters and the 43 stores that it has decided to close. These cuts are part of CEO Dave Lewis plan to cut costs by around 250m per annum.
Nevertheless, as of yet, these actions by management have not started to show through in Tescos earnings. And City analysts dont expect managements turnaround strategy to have an effect on earnings until 2017.
Falling earnings
After reporting a near record-breaking pre-tax loss of 6.4bn for last year, analysts expect Tesco to report a pre-tax profit of 980m for this year.
On a per share basis, excluding exceptional items like Tescos propertywritedown, group earnings per share are set to fall 1% this year. Whats more, according to City figures, Tesco is currently trading at a forward P/E of 24.4, a high valuation that leaves little room for error.
With this being the case, it does look as if Tescos gains over the past few months have been overdone. Further, after the recent dividend cut Tescos dividend yield stands at a disappointing 0.4%.
Too late
Tescos recovery already seems to be priced into the companys shares at this price, which is concerning. The group still has plenty of workto dobefore it returns to growth, and the discounters are still stealing market share from the retailer.
Tescos market share fell bytwo-tenths of a percentage point to 28.4% during the first three months of this year. During the sameperiod,Aldi and Lidls sales rose 16.8% and 12.1% respectively, taking their market shares to 5.3% and 3.7%.
Still, analysts expect Tescos earnings to return to growth during 2017. Figures currently suggest that Tescos earnings per share will jump by as much as a third to 12.1p during 2017. With this figure in mind, the company is trading at a 2017 P/E of 18.5.
But with two years of uncertainty head before Tesco publishes its full-year results for 2017, Im sceptical about these figures.
A better bet
All in all, it looks as if investors have missed the perfect opportunity to buy Tesco. The companys shares now look expensive, and theres plenty ofuncertaintyahead.
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Rupert Hargreaves owns shares of Tesco. The Motley Fool UK owns shares of Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.