We could see the Marks and Spencer (LSE: MKS) share price double within two years.
The retail landscape has shifted. Online retailers like ASOS and Boohoo have been struggling. And consumers are embracing the shopping experience offered by traditional stores again.
The shrinking competition
But traditional store chains have been disappearing.
And with them gone, the consumer now has less choice when out shopping. But M&S has been a survivor. And lower competition may prove to be an opportunity for the business to increase its market share.
Hybrid retailers with both online and traditional stores are emerging as the strongest players in the sector. For example, Dunelm, Next, Greggs, Burberry and others including Marks and Spencer.
There’s been a turnaround strategy in place at M&S for a while. And this time it’s working. The business has lit up with new growth and profitability.
The company released a trading update on 15 August 2023, and the shares closed the day up by just over 8%.
But that gain builds on an uptrend from October 2022. And since then at around 230p, it’s up by just over 130% — impressive! But to put that move in perspective, M&S is around 67% higher than it was a year ago.
The strength in the stock speaks of its potential going forward. And it was last around double the current price near the end of 2015. My belief is the shares could revisit those levels within two years if the company can maintain the rate of earnings growth.
City analysts predict a mid-single-digit advance in earnings for the current trading year to April 2024. And they expect a double-digit increase the year after.
And one year from now, analysts will likely have estimates for earnings for the year to April 2026. If the company can match its current double-digit predictions again, we could see earning in the ball park of 23p. But even then, they will be below the 37p achieved in 2019. So there’s much for the company to play for.
However, earnings aren’t the only potential driver. With better earnings, we often see valuations re-rate higher. And right now, the forward-looking earnings multiple is running at just over 11. If the market re-rates to around 20 because of growth expectations, the share could double from where it is now.
That will take a positive perception of the business and its potential. But there are reasons to be optimistic. For example, the reduced competition from traditional store chains. And the company’s turnaround strategy, which is driving gains in market share.
In the recent update, the firm reported continued all-round growth. And the directors spoke of “good progress”with the programme to reshape M&S.
Meanwhile, the company looks set to re-enter the FTSE 100 index soon. And if that happens, buying from tracker and other funds could help to drive the stock higher.
However, as with all stocks and businesses, positive expectations can be thwarted by events. For example, a downturn in the economy.
Nevertheless, with spare funds to invest, I’d likely embrace the risks with M&S now and pick up a few of the shares.