Is the rising Marks and Spencer share price a sign to buy?
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The Marks and Spencer (LSE:MKS) share price surged last week following its latest trading update. This recent boost to the stock has pushed its 12-month performance to nearly 50%. But can the growth continue, moving forward? And should I be considering this business for my portfolio? Let’s take a look.
The rise of the Marks and Spencer share price
The clothing, food, and home product retailer recently released a promising trading update. Now that lockdown restrictions have ended in the UK, the level of footfall in bricks-and-mortar stores is rapidly recovering. As a consequence, Marks and Spencer has experienced quite a comeback.
Sales from clothing and home products have leapt 92% compared to a year ago, bringing them just under pre-pandemic levels. A similar story can be seen for the group’s international operations. And encouragingly, its latest deal with Ocado has resulted in food sales increasing by 9.6% compared to 2019.
What’s more, with continued investment in its online store throughout 2020, sales from e-commerce came in 22.2% higher than a year ago and 61.8% higher than pre-pandemic levels. Needless to say, this is excellent news for the business. So, seeing the Marks and Spencer share price surge is hardly surprising to me. But can it continue to grow from here?
The winding road ahead
Management expects pre-tax profits to come in at the higher end of its £300m-£350m guidance. This is probably another contributing factor behind the sudden jump in the share price. However, it’s far from guaranteed.
There remains uncertainty about how much of the recent performance came from a permanent recovery in sales, or simply temporary pent-up customer demand. If it’s the latter, then the level of growth throughout the rest of the year may begin to fall.
But even if that’s not the case, the pandemic may continue to disrupt the business. Why? Because even though lockdown restrictions are over, the impact of Covid-19 on global supply chains remains an ever-present threat. Suppose M&S needs to secure new supply routes to compensate for any interruptions? In that case, costs will undoubtedly increase. This, in turn, will likely place additional pressure on margins, resulting in guidance potentially being missed. In such a scenario, I think it’s probable that the share price would take a significant hit.
Now what?
Based on this latest report, it seems the worst might be over for this business. After nearly 18 months of chaos, operations appear to be recovering, taking the share price with it. The risks to the supply chain are worrying. However, this is ultimately a short-term problem. And with £693m of cash on the balance sheet, it’s a problem that I believe the company can overcome.
Having said all that, I’m personally not interested in adding this business to my portfolio simply because I think there are far better investment opportunities to be found elsewhere.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.