My Rant on Tesco. A Value Investor's Take

Category: Finance | By EricBBigham | July 12, 2025

When it comes to identifying fundamentally undervalued stocks, I often draw on a technique advocated by Peter Lynch, the famed investment manager who advised investors to start with companies and products you already know as a customer. Many of us are loyal to brands and services we use frequently, and this deep product knowledge can provide unique insight into a company's underlying health or trouble.

This is precisely how I first became suspicious about Tesco. Years of shopping at my local Tesco store had given me a reliable sense of what good looked like. But suddenly, something seemed off.

For weeks, I couldn't find my favourite "Tesco Finest" Orange Juice with Juicy Bits. I asked staff, visited at different times of day, even tried neighbouring stores nothing. The staff, always pleasant, reassured me it wasn't discontinued, but clearly something had changed.

Around the same time, I noticed a decline in the quality of other fresh products. Fruit once sweet and flavourful, was bland and watery. Grapes and oranges lacked any real taste. To make sure it wasn't my palate, I did a test run at Sainsbury's and M&S. Their fruit was noticeably better, and the price difference was marginal.

This, to me, was more than inconvenience. It pointed to broader operational or supply chain issues the sort of issues that, in my experience, often precede financial underperformance.

As an ACCA qualified Chartered Accountant with nearly three decades of experience I can apply a range of professional financial analysis approaches to filtering stocks and identifying target companies to buy, I bring a professional perspective to investment analysis. However for many people the difficult part can often be identifying which stocks to analyse in the first place, when putting together a portfolio. In this regard I've found Peter Lynch's approach especially useful. Instead of screening for stocks solely based on ratios or technical signals, in his book "One Up on Wall Street: How To Use What You Already Know To Make Money In The Market" he advocated for a simple mindset shift which can lead to remarkably effective ideas.

He said that we are all experts in some companies, but we just don't realise it. The car we drive to take our children to school, the food we eat and clothes we wear are all produced by companies we support through our customer loyalty. He suggested that we can usually sense when when things are not quite right, or are particulalry good from a product perspective and our hunches are often correct. This blog tells the story of how I applied his ideas to identify a fantastic investig opportunity. It turned out not to be quite the ten bagger that he so often raved about, but by any standards it was terrific result. Here is how I applied his approach in real life.

Shopping at my local Tesco store

So, I was shopping as usual at my local Tesco store, and it must have been the fourth visit that the same thing happened. I could not find my "Tesco Finest" Orange Juice, the one with Juicy Bits! I visited the store at various times and concluded this was no accident. Was something wrong with Tesco? It just didn't feel right.

Having been a Tesco customer for many years, I was increasingly becoming disappointed in the general quality of the store experience. The rather pleasant staff in store assured me on each visit that the product was not discontinued, yet none could produce a single bottle of the good stuff!

I noticed at about the same time a gradual switch to the cheap and nasty stuff, a thick and viscous looking product, the sort you wouldn't drink undiluted, and I'm not talking water.

Tesco appeared to be seriously underperforming, at least based on my personal experience of this once great store. With Tesco you don't expect a fancy experience, but once they hook you on a decent product, you do at least expect them to deliver it consistently.

Sadly, I gradually came to notice the general lack of taste in their fruit, oranges, and grapes devoid of any discernible flavour, so much so that I started shopping at Sainsbury's and M&S simultaneously to compare, after all it could have been a problem with my taste buds.

My taste buds however proved to be just fine. M&S fruit tasted sweet and mouth wateringly juicy by comparison, and for not a significant price difference I might add...

That was the trigger to dig a little deeper. I thaught about Lynch, and decided to delve further, as there had to be a causation link between customer experience and financial performance... didn't there?

A cursory glance at the headlines and a quick valuation of their financials proved to be very revealing. I discovered a story that seemed to explain my experience, at least in part.

It didn’t take long to validate my expectations. I had found out that Tesco was a company in turmoil. Many of its former senior management had been dismissed, including the Chair, and with a few short weeks a turnaround specialist Dave Lewis was brought in to right the ship.

Being value minded, I turned to the numbers. I was looking for a bargain, a stromg company with a temporarily depressed share price... (Plese take note, company's with low stock priceses alone are not typically bargains, their price is low for a good reason.

At the time of my initial review, Tesco shares were trading around £3.52. My preliminary valuation suggested they were still overpriced given the uncertainty and the scale of the operational issues. So for a while I stayed on the sidelines.

True enough the stock price subsequently fell to around £1.89 a decline of roughly 46.3%. Over a number of years the turnaround efforts seemed to take effect, and the price recovered, eventually reaching approximately £4.00, a gain of 111.64% from the low. So I won't comment on the price I got in and out at, the article is not about that, this kind of movement does illustrate the value of paying attention to what your shopping basket and your gut might be telling you.

For me, Tesco lost its focus. Customers don't visit Tesco for broadband packages, subpar banking products, or to be bombarded with insurance offers. We go there for groceries. That's the core. That's where the brand once excelled.

Instead, stores began to feel disorganised and inconsistent. The bakery once a point of pride was a shadow of its former self. If you're going to win back customers, you need to fix the basics first: good quality produce, stocked shelves, and reliable core products.