Would I buy Marks and Spencer at its current low share price?

Marks and Spencer Group plc’s (LON: MKS) share price fell to multi-year lows recently, but that’s not enough incentive for me to buy it yet.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Retail giant Marks and Spencer (LSE: MKS) isn’t in a pretty place. This week, its share price fell to lows last seen in early 2012. While there’s been some recovery since, it’s too small to count. For anyone who’s been observing this company’s share performance over time, it’s no surprise really.  The price has been on a downslide for the past four years, and it’s recently been able to hold its place in the FTSE 100 just by the skin of its teeth as its deteriorating market capitalisation got a boost from a rights issue.

The fact remains though, that it’s a huge brand and one that has been around for a long time. And for these reasons alone, it can’t be completely written off from an investor watch list. With this in mind, I am inclined to untangle the story to get to the heart of how I think an investor should approach this share going forward.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Retail moves online

The first and most obvious question worth considering in my view is, why has the share price dipped so much and for so long? To give some context, the price is presently trading at half the highest levels seen in the last five years and is around 30% lower than the average levels.  

The structural changes afoot in retail, with the advent of online sales and ease of shopping across platforms, have increased competition for established retailers. Other big retailers like NEXT and Superdry have also been reeling from these changes, as evident from their uninspired share price movements over the past year.

M&S is trying to respond to these shifting patterns of consumer behaviour to stay relevant. For instance, it announced the closure of 17 more stores recently, in line with its strategy to move its operations increasingly online. This has already had effects on its financials. It attributed the fall in sales for categories like Clothing & Home for the year ending March 31 to the ongoing closures. The group as a whole saw a 3% dip in revenue and profit before tax declined by almost 10% during the year.

The fact that it’s a UK focused company, with less than 10% of revenues generated internationally, means Brexit-driven uncertainty is likely weighing on investors’ minds as well, diluting the share price performance.

Steps toward a turnaround

Following on from this, the next big question is, can it turn itself around? I’m not entirely pessimistic. Its online Clothing & Home business grew by a healthy 9.8% during the year, increasing market share a little, which to me looks like a step in the right direction. Its outlook isn’t entirely disappointing either. According to CEO Steve Rowe’s statement at the time of the full-year earnings’ release, “we remain on track with our transformation and are now well on the road to making M&S special again.”

On balance, I’m of the view that it’s not a lost bet, but it’s not an immediate investment by any stretch of the imagination either. More evidence of a turnaround is needed to give me confidence in its prospects and its chances of offering healthy investor returns.  Until then, there are better performing companies and sectors to be considered. I’ll sit this one out.

More on Investing Articles

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

Best British dividend stocks for July

We asked our freelance writers to share the top income stocks they’d buy in July, which included Dividend Aristocrats and…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How I’d apply the Warren Buffett method to buying shares

Learning from billionaire investor Warren Buffett, our writer explains his own approach to investing in shares for his portfolio.

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

This dividend share yields under 1% — but I’d still buy it

This dividend share has a low yield. So why would our writer consider adding it to his income portfolio?

Read more »

Young lady working from home office during coronavirus pandemic.
Investing Articles

Looking for a good share to buy? Here’s how I do it

Here are two approaches our writer uses when hunting for a good share to buy for his portfolio to aim…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

One cheap FTSE 100 share I’d buy for a new bull market

This FTSE 100 share is unloved and starting to look seriously cheap, says Roland Head.

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

How I’d invest £500 in UK shares in 2022

Investing a small amount of capital in UK shares can result in high commission costs. Zaven Boyrazian explains how to…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

2 battered FTSE dividend stocks to buy in July!

I'm still searching the FTSE 100 for the best bargains to buy. I think these two big dividend shares are…

Read more »

Woman pulling baffled face
Investing Articles

Can I trust Lloyds’ 6.1% dividend yield?

The Lloyds' share price has sunk in 2022, causing the bank's dividend yield to leap. But can I really trust…

Read more »