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Should I buy after big Marks & Spencer share price jump?

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I don’t often get to write about Marks & Spencer (LSE: MKS) shares flying. But that’s exactly what’s happened. The M&S share price climbed 14% Friday, for its biggest one-day gain of 2021. And it had inched up another couple of percent by midday Monday.

It’s due to Friday’s trading update for the 19 weeks to 14 August. It must have been electric, right? Well, it looks fine to me, but it doesn’t get me too excited.

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Compared to the same period a year ago, revenue jumped 29%. But last year’s pandemic-blighted comparatives aren’t hugely meaningful.

Looking back to the equivalent period in 2019, we see a 4.4% increase. That’s nothing to gripe about. But is it enough to make M&S the new rising star of the retail scene?

I can’t help wondering if a bit of takeover frenzy might be creeping into the picture. Before the Marks & Spencer share price leap, we had just heard of the latest recommended offer for Morrisons, valuing the supermarket chain at £7bn.

Takeover fever spreading

The speculation’s already moved on to Sainsbury, with the weekend papers tipping it as the next buyout target in the sector. And guess what? The Sainsbury share price spiked up 14% early Monday.

But let’s get back to the M&S update. As we might have expected, the revenue gain since 2019 is down to food, up 9.6%. Clothing & Home (C&H) revenue declined by 2.6%, again compared to two years ago. From last year, C&H revenue almost doubled, but that’s from a very low crash level.

Now, it might sound like I’m a bit negative towards M&S, but I’m actually warming to the company. The figure I most liked was C&H online sales — up a remarkable 62% from pre-pandemic levels. In-store revenue dropped 20%, but I’m reasonably happy with those relative trends.

M&S share price perspective

The big leap does need to be seen in perspective. It comes after a couple of months of decline, and the M&S share price is still below its 2021 high from May.

We’re still looking at a decline of more than 10% over the past two years, while the FTSE 100 is just about back to where it started. Over that timescale, Marks & Spencer shares are still underperforming.

There is one thing in the update that opened my eyes wide. Speaking of the full-year outlook, the company said that “…assuming no further Covid-related restrictions on trading, at this early stage we expect adjusted profit before tax for the year to be above the upper end of previous guidance of £300m-£350m.”

Guidance uprating

When’s the last time we heard M&S talk about ‘above the upper end’ of anything? Fellow Motley Fool writer Paul Summers has expressed similar thoughts on that subject. But he also sounded an important caution, that it will only mean something if it can be maintained.

Overall, I’m feeling upbeat about M&S. But I want to see how things go when we’re confident that Covid-19 is fully behind us. First-half results are due on 10 November, and that’s the next key date for me.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons. 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.

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