Rising Tesco, Marks & Spencer Shares Are Getting Overbought

UK retailers are still firing on all cylinders this year as signs emerge that the economy was doing better than expected. Marks and Spencer (MKS) and Tesco (TSCO) share prices have soared by 20% this year and are sitting at their highest points on record. Tesco has risen by over 140% in the past five years while MKS is up by over 80% in the same period, meaning that they have beaten the FTSE 100 index. Other British retailers are also doing well. Sainsbury (SBRY) has jumped by almost 90% in the past five years while Next PLC (LON: NXTL) has soared by 75%. Morrison’s was acquired for over £8.7 billion in 2021.Still, not all British retailers are doing well. Boohoo stock has crashed by over 80% from its all-time high while JD Sports Fashion is one of the worst-performing companies in the FTSE 100 as the industries continued. Ocado, a leading e-commerce company, has also crashed hard. UK economy is doing wellMarks and Spencer and Tesco share prices have done well because of the ongoing UK recovery. Recent data showed that the economy expanded by 0.9% in the second quarter from 0.3% in the previous quarter. Other data showed that the country’s manufacturing and industrial production numbers rose in July. At the same time, US core retail sales jumped to 1.4% in July after dropping by 0.8% in the previous month.The headline retail sales rose by 0.5% after falling by 0.9% in the previous month. They rose by 1.4% on a year-on-year basis, higher than dropping by 0.3% in the previous month. These numbers mean the economy is doing better than expected and the trend could continue as the Bank of England (BoE) has started cutting interest rates. In most cases, companies like Tesco and Marks and Spencer benefit when the economy is thriving.  Tesco’s business is doing wellThe most recent financial results show that Tesco’s business was doing well as the company continued gaining market share. Its total retail revenue rose by 3.4% in the last quarter to over £15.3 billion. This growth was mostly in the UK, where its revenue rose by 4.6% to £11.3 billion. Its ROI business grew by 4.4% to £731 million. These numbers were offset by a 1.3% drop of its Booker wholesale business. Most importantly, the company continued to gain market share in the UK. Its market share rose by 52 basis points in the last quarter to 27.5%.  Marks and Spencer growth has continuedMeanwhile, Marks and Spencer, which has a joint venture with Ocado, has also continued firing on all cylinders. The most recent annual results revealed that its annual revenue rose to over £13 billion in the last financial year from £11.9 billion a year earlier. This is notable since the company made over £9 billion in 2020. Also, its profit before tax moved from £3.1 million in 2020 to over £716 million while its free cash flow soared to £413 million. Most importantly, the company is also growing its market share in the food industry. In the last financial year, its food revenue rose by 13% to over £8.15 billion.  Closing the valuation gap with US peersTherefore, the ongoing MKS and Tesco stock price is happening as these companies close their valuation gap with their American peers, which have a price valuation. Tesco trades at a price-to-earnings multiple of 13 while Marks and Spencer has 15.5. These numbers are higher than where they were a few years ago because of the stock surge. In contrast, Target, a struggling American retailer, has a PE multiple of 15.2 while Walmart has a multiple of 29. Costco, a leading American wholesaler has a multiple of 53 while Dollar General and BJ’s Wholesale Club have multiples of over 16. The closely followed SPDR S&P Retail ETF (XRT), which has over $351 million in assets has a price-to-sales multiple of 50.  Tesco share price outlookTesco stock chart | Source: TradingViewMore By This Author:Japan Stocks Lead Asian Markets To Best Week In Four Years US Jobs Data: Unemployment Claims Fall, Ease Recession Fears Intel Offloads Stake In UK Chip Designer Arm Amid Restructuring Push