Are Marks and Spencer shares heading back up to 700p?

Up almost 80% since October: can Marks and Spencer shares go back to their previous highs near 700p in this turnaround rally?

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Investors who bought Marks and Spencer (LSE: MKS) shares last October are now sitting on a gain of about 80%.

And that’s a remarkable turnaround for the stock. It had previously been underperforming for years.

But to put the recent move in perspective, the current share price near 166p is about 8% higher than it was a year ago.

After years of underperformance, the business finally looks like it may be turning around. 

Changing sector conditions

And several factors in the retail sector may now be working in the company’s favour. For example, much of the competition from store retailers has disappeared. And more recently, some fashion clothing retailers relying just on internet sales have been struggling.

But multi-channel retailers with both internet and shop sales are doing well. And good examples can be found in Next and Dunelm. However, Marks and Spencer is also a well-placed retailer selling from stores and the internet. And that bodes well for its ongoing turnaround.

On top of that, it looks likely that cost-of-living pressures could begin to ease for consumers this year.

Investors became excited about the possibility of better times ahead for the business back in 2021. The stock price ended the year near 250p before falling back during 2022.

Nevertheless, 250p is a good interim target towards a further potential rise that may take the shares back to their former glory days. And the company was riding at its highest on the 20-year chart back in 2007 when the stock changed hands near 700p.

But further progress from the stock depends on further progress from the business. And Marks and Spencer has chalked up quite a reputation for underperformance in recent years.

Targeting growth

However, back in January, the company posted a strong set of third-quarter trading figures for the 13 weeks to 31 December 2022. Overall sales rose by 9.7% compared to the prior year’s equivalent figure. And like-for-like sales were up by 7.2%.

Food sales made up just over 64% of the total in the period, demonstrating how important the category is to the business. But to drive the share price back to former levels, it will likely take strong forward progress from all categories. And that means Food as well as Clothing & Home.

Chief executive Stuart Machin said in January the company is acting to reduce costs and reinforce its customer proposition. And the directors are focused on delivering “the M&S Reshaped programme” to drive growth and value creation.

However, City analysts predict that earnings will fall back by almost 10% in the current trading year to April 2024. Although the shareholder dividend looks set to rise by around 34%.

The Marks and Spencer business may face further challenges ahead. And there are risks here for investors. But if the company can keep its sales growing profitably, it’s possible the stock could make decent progress in the years ahead.

We’ll find out more with the full-year results report due on 24 May. But in the meantime, I think the company is worth further research with a view to holding the stock for the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has positions in Dunelm Group Plc. 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.

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