Marks & Spencer (LSE: MKS) was suffering long before the Covid-19 pandemic arrived. Over five years, the M&S share price is down a whopping 80%. And if you want something really scary, this year it fell lower than it’s ever been since the FTSE 100 and FTSE 250 were born.
Since lockdown, the retail rout has hit even harder. As I write, the M&S share price has fallen 50% since the start of the year.
How low is too low?
Is M&S oversold and a stock to buy now? To answer, I ask myself one key question: is it going to go bust? And I think the answer is a clear no. Profits are well down since the glory days, but I really don’t see much liquidity risk.
At 28 March, net debt excluding lease liabilities (that is, the old way of doing things before new accounting rules came in) stood at £1.46bn. That’s for a company with annual revenue of £10.2bn. It doesn’t overly worry me.
On valuation, the Marks & Spencer share price looks low, on a trailing price-to-earnings multiple of just six. Analysts, however, are forecasting a big earnings per share fall for the current year, though they do have a reversal penciled in for 2022. But right now, that seems a long way away.
A tale of two businesses
I see two major factors behind Marks & Spencer’s chances of making it through its chronic crisis. (Can you have a chronic crisis? I’d say M&S can.) The first is, inevitably, clothing. M&S is firmly failing to reach the younger end of its potential customer base. It’s been failing not just for years, but for decades. And that’s solidly behind the M&S share price slide.
Unless it can turn that around, it’s going to keep relying on older people. Older folk might usually be seen as technically less clued up and not ones for shopping using only their thumbs. But during the Covid-19 crunch, more and more mature shoppers have been turning online. And M&S is not the obvious first stop.
The other side to the business is, of course, food. And that’s going well. The nearest M&S to me is a food-only store, and it’s clearly doing great business. The tie-up with Ocado is also a very big move in the food direction, though many see it as an expensive and risky one.
M&S share price survival
As far as I can see, food seems to be the only hope. The survival of Marks & Spencer surely depends on it. But is that enough for me to want to buy the shares? It would be firmly abandoning the M&S that my generation grew up with. And, for investors, that means forgetting all we previously knew about it and revaluing it as a brand new business.
And if a move to 100% food really is the future, what’s going to happen to all those big stores dotted around the country?
There’s simply too much uncertainty here for me. And I have no clear idea of what M&S will look like in another five or 10 years. Buying into a company when I have no view of its future shape is not for me.
