Ive been waiting for the right opportunity to buy into supermarket titan Tesco (LSE: TSCO) ever since the companys now infamous profit warning of January 2012.
But the goalposts have kept changing, and the price at which Id be prepared to buy has fallen ever lower.
The long wait
After the 2012 profit warning, when the shares were trading at 320p, I wrote that Tescos Shares Are Not A Buy For Me and that I was looking to see the price comfortably below 300p, based on the company meriting a P/E of no more than nine.
It was a long wait, but in the spring this year the shares dipped below 300p. However, by then the landscape for the big four supermarkets Tesco, Sainsburys, Asda and Morrisons had clearly changed. It had become obvious, even to the big four themselves, that the rise of discounters Aldi and Lidl was more than a temporary blip.
With the shares trading at 305p, I wondered Will Tescos Shares Fall To 250p? and concluded its certainly possible. Earnings downgrades meant that 250p was actually a bit higher than my longstanding bargain-buy target P/E of nine. Furthermore, I was becoming concerned about Tescos balance sheet and a potential Property Time Bomb.
The goalposts shifted again after two profit warnings from Tesco in July and August. With the shares trading at 225p, I suggested Tesco Shares Could Now Fall Below 200p. Indeed, I argued they should be 200p already. (My bargain-buy P/E of nine now indicated a price of around 175p.)
The wait goes on
Just when I was thinking a final capitulation might provide me with a buying opportunity, Tesco threw us another curveball in the shape of accounting irregularities and a 250m overstatement of first-half profits.
Today, with the shares trading at around 191p, Im suggesting they could now fall below 150p.
I think Tescos latest profit warning is the most troubling yet. The company has suspended four executives and called in outside auditors to conduct an independent review. Whether the irregularities are limited or the tip of an aggressive-accounting iceberg remains to be seen.
Certainly, the new chief executive has every incentive as part of a kitchen-sinking fresh start to take the opportunity to put Tescos accounting on to an ultra-conservative footing, which may also extend to goodwill impairments and property value writedowns.
In the present uncertain circumstances, as an investor, Im looking for an additional margin of safety. Im going to apply my required P/E multiple of nine to the bear end of the analysts earnings-per-share (EPS) forecast range, rather than the consensus. According to the Financial Times, the low EPS is 14.9p, which at a P/E of nine gives a share price of 134p.
Analysts at Societe Generale have recently painted a worst-case scenario that they say implies a share price of 150p, which in our view would be the threshold for viewing Tesco as a value stock.
So, as things stand, this 134p-150p ballpark area is what Im looking for. Having said that, Im being particularly greedy for a mega-bargain with Tesco, and risk missing out. Certainly, I think my pre-accounting-scandal target of 175p could prove to be a perfectly decent entry point for long-term investors.
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G A Chester has no position in any shares mentioned. The Motley Fool owns shares in Tesco.