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The turnaround is on for Marks and Spencers (LSE: MKS) shares. The FTSE 100 company’s new approach has been bearing fruit. A £10,000 stake in the stock invested at a low point in 2022 would now be worth almost £40,000.
Keen observers will note that the share price of 364p is still trading at a discount compared to an all-time high of 699p. Here is how the company might get back to that figure and beyond in the years to come.
Storms and teacups
Hang on a second now! Are we talking about the Marks and Spencer? The beloved British brand that made headlines in the newspapers and threw away £300m last year because of a ransomware cyberattack?
Yes, we are. And that little episode was no storm in a teacup. It wiped out the majority of the company’s earnings for the year. It also gives Marks and Spencer the highest price-to-earnings ratio on the FTSE 100. The stock trades at 409 times earnings!
Don’t be fooled though. As rough as the fallout from the cyberattack was, this is a temporary blip in what has been an excellent few years for the company. A better comparison is to look at the forward P/E ratio which is just 10.8. That is significantly cheaper than the index average.
The issue checked the rise of the share price too. This means investors can buy into Marks and Sparks for cheaper than the shares were back in 2024. So, should they?
Great guns
Marks and Spencer is built around two key divisions – Clothing (around 30% of sales) and Food (around 70%) – and both have been going great guns.
While Clothing has slowed a little recently, it has been more than offset with growth in Food. The firm’s market share has even grown to be equal with Waitrose (including online deliveries in a joint venture with Ocado)!
While the supermarket sector is ruthlessly competitive, the Marks and Spencer market share of just 4.5% suggests there could be room to grow. Most promisingly, it is carving out a niche as one of the best higher-cost shops while still offering cheap staples with its Remarksable Value range.
That market share is on the up too. Marks has made headlines for being the UK’s fastest-growing supermarket on multiple occasions over the last couple of years or so.
On a personal note, the twin threats of inflation and ‘shrinkflation’ (where products get smaller or use fewer ingredients) really seem to be destroying a lot of people’s attitudes towards a lot of typical supermarket offerings. I think this can work in the favour of Marks and Spencer with its focus on higher-quality ingredients and British sourcing, even if it does come at a premium price.
To sum up? I think there’s a lot to like with a valuation that is forecast to be significantly below average. I’d call it one to consider.
