Investors have good reasons to hate Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US), given that itsshare price has plunged nearly 55% inthe past year, and 11% in the last month alone.
Yetprivate investors are proving remarkably loyal, according to new research from TD Direct Investing. Its customers have bought more Tesco than any other stock for three of the past four weeks.
In fact, Tesco hasnt left TDsTop Ten Buys list for more than 10 weeks. Clearly, many private investors are still willing to give Tesco one more go. Should you?
Love Hurts
Tesco has rewarded loyal investors with a 92% profits crash, plunging market share, that 263m accounting black hole and a Financial Conduct Authority investigation. Talk about an abusive relationship.
Is this blind love, or are private investors more far-sighted than their institutional equivalents, cleverly positioning themselves for the recovery?
Love On A Budget
The reason most private investors are swooning over Tesco right now is that they calculate they are picking up a bargain.
The bad news is out there, the damage has been done, and the only way is up. They see Tesco trading at an irresistible valuation of just 5.3 times earnings, and just cant help themselves.
They might get their reward. New boss Dave Lewis has refused to set out a grand plan purely to placate the City, but has quietly got down to business, suspending senior staff caught up in the accounting scandal, ditching the corporate jets, and focusing on restoring the tarnished Tesco brand.
The slightest suggestion that heis turning things round could do wonders for investor confidence and the share price.
The Tender Trap
Myworryis that investors tender feelings for Tesco are luring them into a value trap.
The supermarket sector is said to be instructural decline, with sales and margins sliding, out-of-town superstoreslooking obsolete, and disenchanted customers falling forno-frills foreign discounters.
But I wonder whether this shift has been overblown. Most cash-strapped, time-poor shoppers arent going to forsake Tesco for their localartisan baker or farmers market.
The novelty of slummingit at Aldi and Lidl may also wear off, just as the chainsoverreach themselves with ambitious expansion plans. The big four could fight back.
It is tempting to make a play for dirt cheap Tesco right now, but its also dangerous. Remember, the course of true love never did runsmooth.
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Harvey Jones has no position in any shares mentioned. 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.