If I’d invested £10k in Marks & Spencer shares a year ago here’s what I’d have now

Marks & Spencer shares have smashed it over the last 12 months in a blistering return to form. Where will they go next?

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There’s something comforting about the way Marks & Spencer (LSE: MKS) shares have surged back into investors’ affections. The UK high street stalwart had been in painful decline for years and it felt like the end of an era when it slipped out of the FTSE 100.

Yet it has shot back out of the FTSE 250 at speed and it’s been a joy to watch. I’d have been even happier if I’d bought its shares when they were out of fashion. Sadly, I didn’t.

Comeback kid

The Marks & Spencer share price is now up 95.83% over the past 12 months. Only two FTSE 100 stocks have done better in that time, British Gas owner Centrica (up 96.88%) and aircraft engine maker Rolls-Royce (161.73%).

If I’d been far-sighted enough to invest £10,000 in M&S shares a year ago, I’d have a meaty £19,583 today, having almost doubled my money. So much for hindsight. The only question worth considering today is this one. Is now still a good time to invest?

All my instincts are initially screaming ‘NO!’ I resist buying shares on the back of a strong run like this. I prefer to buy them before they rally, rather than afterwards. Bit late for that now.

Yet there’s a case for catching a ride on momentum stocks, particularly one that has just reported a 56.2% leap in first-half profits to £325.6m. Not many FTSE 100 companies can match that kind of growth right now. It’s particularly impressive since M&S has defied the cost-of-living crisis and a slowdown in the high street while doing it.

Its shares aren’t expensive either, trading at 13.5 times earnings. I can even expect some income, as the board has just restored the dividend. Analysts reckon the stock will yield 2.51% in 2024, and 3.07% in 2025.

In two minds

The board has been telling investors not to get carried away, warning that the crucial Christmas trading period could be hit by higher interest rates, the wrong type of weather, and geopolitical storms. Its Christmas ad campaign has already run into a couple of unexpected controversies. Although for all we know, the publicity may do M&S more good than harm. At least people are talking about it.

Luckily, sales growth has been a lot smoother, with food sales up 14.7% and its clothing & home division posting growth of 5.7%. Having been a fashion disaster for years, it’s finally beginning to recapture its mid-market cool by picking winners in both own-brand and third-party fashion brands.

Yet M&S still faces issues. Shoppers have long since spent their lockdown savings and with no interest rate cut in sight, the consumer squeeze may continue well into next year. Wage growth is set to slow while job losses will rise. Marks’ tie-up with food delivery specialist Ocado continues to fall flat, with losses rocketing from £700k to £23.5m year-on-year.

I still think the future is promising but it won’t take much to burst today’s high expectations. I won’t jump on the M&S bandwagon, but hunt around for the next big FTSE 250 recovery play. Let’s hope I don’t miss it this time.

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.

Harvey Jones 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.

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