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For much of 2023 and 2024, Marks & Spencer (LSE:MKS) was one of the UK growth stock heroes. The turnaround plan that was implemented yielded financial success, boosting investor confidence in the company. However, the Marks & Spencer share price has declined by 3% over the past year. After a 232% jump in the last three years, I’m left wondering if the buzz is now fading or it’s imply taking a pause.
Recent problems
Earlier in the spring, the firm suffered a serious cyberattack, which disrupted online orders and logistics systems. This wiped around £700m off the stock’s market cap in the week that followed. After all, such incidents erode investor confidence in operations, add costs, and create reputational risk.
The fiscal half-year results that came out earlier this month also indicated higher costs and lower sales. CEO Stuart Machin said that “the retail sector is facing significant headwinds — in the first half, cost increases from new taxes were over £50m”. Given that the upcoming government budget could see further tax increases, this problem could compound further.
Finally, after the incredible share price run, some analysts believe that the share price has already factored in much of the firm’s recovery. Indeed, the company can no longer be referred to as significantly undervalued, so further stock gains would need to come from new catalysts related to company growth.
Both sides of the coin
Before we get bogged down with doom and gloom, let’s consider why the stock could push on over the coming year. To begin with, although it’s not dirt cheap, it’s certainly not expensive. For example, the price-to-earnings ratio is 11.99. In comparison, the FTSE 100 average is 18. On this metric alone, the share price could continue to move higher before I’d consider it overvalued.
Fundamentally, the business is still in the process of refreshing its stores, as well as focusing on smaller outlets and strengthening omnichannel capabilities. Even with concerns about inflation, the food arm continues to be a strong performer in terms of results. Therefore, there are numerous avenues that can offer future growth, which could impress investors and drive the stock higher.
Of course, the stock’s performance over the past year has been disappointing. Turning around store formats, along with growing online and international operations, all take time. Furthermore, there are no guarantees that it will continue to be a success. That’s potentially why some investors might feel the stock recovery story has run its course.
Despite these risks going forward, I struggle to see how the best days for the company are in the past. The continued transformation can yield benefits for years to come. The growth trajectory remains strong, and it’s not overvalued. That’s why I think it could be a good time for investors to consider buying.
