If I’d put £5k into Marks & Spencer shares on 18 September here’s what I’d have now

Marks & Spencer shares have had a terrific run over the last couple of years. Harvey Jones wonders whether the momentum can continue.

| More on:
Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I never expected Marks & Spencer (LSE: MKS) shares to recover as dramatically as they have. In fact, I didn’t think they’d recover at all. While its food stores were fab, clothing and general merchandise seemed lost somewhere in the 1970s, doomed never to return to the present day.

The company’s legacy store estate was visibly jaded, battered by online competition and expensive to maintain. Like many, I was saddened to see this British high street giant drop out of the FTSE 100, but not exactly surprised. Then I stopped thinking about it. Next thing I knew, its shares were back in style and I was the one looking out of touch.

FTSE 100 comeback kid

New CEO Stuart Machin, appointed in May 2022, has somehow succeeded where so many predecessors had failed.

He took tough decisions such as closing tired high street stores and shifting to smaller, snappier shops in retail parks with handy click-and-collect services.

The group’s last set of annual results, which covered the 12 months to April 2023, showed clothing and home sales up 11.5%, and food sales up 8.7%. That’s particularly impressive given the cost-of-living crisis.

As a rule, I prefer to buy beaten-down stocks before they recover, rather than afterwards. So while I admired M&S’s new-found purpose, I was wary of buying its shares, which had jumped 70% in the 12 months before it rejoined the blue-chip index on 18 September 2023.

They opened that day at 222.5p. If I’d invested £5,000 I would have had fun for a while. The share price continued to rally, peaking at 290.5p on 8 January, a rise of more than 30%. That would have increased my £5k by £1,528, giving me £6,528.

The stock has since crashed almost 18% to today’s share price of 239p, which would have reduced my £5k to £5,370. I wouldn’t have received any dividends in that time, because currently M&S still doesn’t pay one.

A buying opportunity?

Marks had a solid Christmas, with sales rising 8.1%, but warned of rising wage and business rates-related cost inflation. The real damage has been done by the fallout from its ill-fated 2019 tie-up with Ocado Group.

M&S is withholding a £190.7m final payment after their Ocado Retail grocery delivery venture missed key performance targets. Now the two are locked in talks over how much M&S should pay, if anything.

As this seems to be Ocado’s bad, it could be an opportunity to snap up M&S shares at today’s reduced price. They look reasonable value with a forward price-to-earnings ratio of just 10.9 times for 2024. Dividends should resume in 2024, with a forecast yield of 1.26% rising to 2.51% in 2025, although this isn’t guaranteed.

The group has to shoulder more costs, including investing £30m in its Scottish stores, and spending £89m lifting staff onto the Real Living Wage of £12 per hour. However, it may get a boost if inflation eases, interest rates fall and shoppers feel better off.

I expect M&S shares to hold their own but I’m not expecting a repeat of their recent resurgence. That ship has sailed. Instead of buying them, I’ll look for the next recovery play instead. Let’s hope I’m not too late 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 recommended Ocado Group Plc. 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.

More on Investing Articles

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Investing freedom — but inside a pension

Strapped consumers might be cutting back on investing, but they’re still keeping up their pension contributions. The only problem? A…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Forget gold! I’d rather buy these 3 FTSE high-yielders in a Stocks and Shares ISA

Gold looks like a risky investment to me as the price hits an all-time high. I'm ignoring the fuss to…

Read more »

Young female business analyst looking at a graph chart while working from home
Growth Shares

This 55p UK stock could rise more than 300%, according to a City broker

This UK stock has fallen from above 800p to below 60p. But analysts at Citi believe it’s capable of a…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

I think this FTSE 250 trust has all the right ingredients to lock in long-term profits

Today I'm examining the prospects of a private equity investment trust on the FTSE 250 that caught my attention recently…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 under-the-radar UK shares investors should consider snapping up

Two UK shares have caught the eye of our writer. She explains why investors should be taking a closer look…

Read more »

Investing Articles

Are these 2 ultra-high-yielding income stocks a good buy for me?

These two income stocks often split the debate amongst investors. So what does our writer think of them as potential…

Read more »

Senior woman potting plant in garden at home
Investing Articles

5% yield! This dividend stock could be great for my retirement

Our writer explains why this dividend stock appeals to her as she’s investing to build wealth to enjoy in the…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d aim for a second income of £1,000 a month with this super-reliable dividend stock

I think a great way to build a second income stream is by investing in dividend stocks via a Stocks…

Read more »