After a historic run in 2023, the Marks and Spencer (LSE: MKS) share price has fallen 7% so far this year as I write. Past returns are no indication of future performance, however, there are several reasons why I think this stock could finish the year higher in 2024. Could this small dip provide me with the perfect entry point for my portfolio? Let’s take a closer look.
Attractive valuation
One would think that after rising 120% in 2023, the shares might be slightly overvalued. However, trading at just 13 times earnings, this doesn’t look like the case. For context, the FTSE 100 average price-to-earnings (P/E) ratio is 14, so the stock is pretty much in line with the rest of the market.
Additionally, analysts anticipate sales to rise almost 10% for the financial year ending March 2025. Alongside a sales increase, they expect earnings per share to rise to 24.8p. Based on today’s share price, that puts the forward P/E ratio at around 10. It seems like great value to me.
The company has done an excellent job at transforming its stores, supporting its premium food ranges with food-only stores, as well as vastly improving its clothing lines. It’s also a household name in the UK, holding extremely strong brand power. Both of these are big green flags for me as a potential investor.
So why have the shares fallen in 2024?
I think that this year’s share price drop reflects profit-taking from some investors. With such a large share price jump in 2023, some investors inevitably want to take their money and run.
Much of this year’s share price decline came after M&S released its Christmas trading update earlier this month. Sales figures came in 8% higher year on year. So why else did the shares fall apart from profit-taking? Well, after the bullish November update, I expect investors had inflated expectations of performance.
If this is indeed the case, I believe a slight adjustment in valuation offers me the opportunity to grab some shares at a small discount and hold for long-term growth.
In the report, CEO Stuart Machin referenced his worries surrounding the uncertain economic outlook for 2024. Additionally, he mentioned the company expects rising costs due to wage inflation and increased business rates. I expect this outlook also served to dampen the price.
Nonetheless, Machin expressed his confidence in the company’s performance, citing the “strong” Christmas trading period, bolstering expectations of meeting full-year results in line with market forecasts. If M&S can achieve these forecasts, I expect the share price to rise accordingly.
Should I be buying the stock?
While I’m uncertain the shares will be able to double in value again in 2024, I think we could continue to see more upward movement. As long as M&S can deliver solid results and overcome economic challenges, I think investors will resume pushing the share price higher. If I had some spare cash, I’d be looking to buy now.
