Image source: Getty Images
£10,000 invested in Marks & Spencer (LSE:MKS) shares would be worth £10,200 today. Add in £100 in dividends, it’s not a bad return, but clearly it’s not great. Investors typically want to see their investments grow by more than 2%-3% per year.
So, what’s happened? Let’s explore.
Lacking more positive catalysts
The share price has reflected a combination of operational setbacks and broader market dynamics.
The most immediate blow came in April 2025, when the retailer was hit by a major ransomware attack that disrupted online and click-&-collect services. The incident, which is expected to cost the company around £300m in operating profit, not only dented earnings but also rattled investor confidence in M&S’s digital resilience.
At the same time, structural pressures have weighed on profitability. Rising costs tied to wage increases, inflationary input pressures, and changes to National Insurance have all contributed to margin compression. However, this is not a story specific to M&S. Last year’s Budget has put business, small and large, under pressure in the UK.
Meanwhile, M&S has continued to grow sales. However, the earnings outlook has been tempered by these cost challenges, making it difficult to deliver significant shareholder returns in the near term.
Finally, sentiment is also being shaped by valuation. After several years of strong share price gains on the back of its transformation programme, M&S now trades on a price-to-earnings multiple that many analysts consider to be fair rather than cheap.
What the valuation says
With limited room for re-rating, investors appear to be in wait-and-see mode, leaving the shares broadly rangebound. The stock continues to trade around 20% below the average share price target, reinforcing that idea of hesitancy.
Marks & Spencer currently trades at around 14 times forward earnings, a level not far from the four-year average. Forecasts show this multiple easing to 10.6 times and then 9.8 times as earnings improve.
That’s considerably cheaper than Tesco — the grocery sector leader — although its premium valuation is typically associated with its size and resilience.
Meanwhile, the dividend yield, modest at 1.5% but expected to rise to 2% during the medium term, provides some income support but is unlikely to drive w strong re-rating in the near term.
How do I read this? Well, if M&S does deliver on these earnings forecasts in the medium term, I’d expect to see some re-rating. In other words, the stock will push up and we’ll see it trading closer to 15 times 2026 earnings, for example.
The bottom line
I believe M&S is one for the watchlist. It’s worth considering, but maybe worth keeping an eye on any more near-term developments before jumping in. That’s my thinking anyway. I’m buoyed by the medium term forecast, but wary of any additional fallout from the cyberattack as well as the Budget.
