Hunting for value shares? This FTSE retail gem looks like a no-brainer buy to me!

Always on the lookout for great value shares, our writer details why this innovative FTSE retail giant is a stock that he can’t ignore.

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Image source: M&S Group plc

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When developing a long-term investment strategy, value shares are a critical component to consider. They can provide a solid foundation of low-cost stocks that deliver reliable returns.

Typically, these are companies that have gone through a troubled period and are now trading below fair value. Unlike growth stocks, they usually aren’t making headlines and may appear unfavourable. But in the long run, they are stocks that are expected to recover. 

Like in that old fable, the tortoise and the hare: slow and steady wins the race!

Should you invest £1,000 in Marks and Spencer right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Marks and Spencer made the list?

See the 6 stocks

A top value share

Created with Highcharts 11.4.3Marks And Spencer Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

One promising stock that has already delivered decent returns is Marks and Spencer (LSE: MKS). 

It made a spectacular comeback over the past few years. Back in 2020, the share price was floundering below 99p after years of losses. Now back above £3, it’s close to a seven-year high.

So how did this happen — and where is it headed?

Falling out of fashion

As one of my favourite UK high street stores, I was sad to watch it struggle all those years. Naturally, the pandemic added to its woes but the troubles began long before. Food-wise, I feel it’s always been a winner but its fashion business let it down.

The sharp rise of affordable online clothing retailers hit the brand hard in the 2010s. It was already struggling to compete with high-street retailers like Primark and Zara. A slow and error-riddled attempt to launch its own online store meant it fell out of favour with a new generation of shoppers.

Back in the game

The company became profitable again in late 2021 following a strategic overhaul. Then, when Steve Machin took over as CEO in 2022, its fortunes took off. In May this year, it posted a 58% rise in annual profits, prompting the shares to rally by almost 10%. 

But it’s not in the clear yet.

A partnership with delivery firm Ocado was meant to boost profits but sales failed to materialise, resulting in missed targets. When M&S withheld a final payment, Ocado threatened to sue.

A recent boost in sales may help smooth things over but the future is uncertain. Seeking out a new delivery solution could be expensive and disruptive. With things on the up, the last thing it needs now is to upset the apple cart.

Growth and dividends

Using a discounted cash flow model, the shares are estimated to be undervalued by 37%. With earnings forecast to grow 22%, M&S sports an attractive forward price-to-earnings (P/E) ratio of 12.8. That’s down from a trailing P/E of 15.8. 

But even more impressive is its huge sales boost recently. With £13bn in sales compared to a £6.8bn market cap, its price-to-sales (P/S) ratio is only 0.5. That’s a promising figure.

Dividends were reinstated this year but are negligible. After being reduced in 2019 and again in 2020, they were cut altogether. Now they’re back at 3p per share. A positive sign but far from 2018’s dividend of almost 18p. For now, the 1% yield offers little value but if growth sustains, it could get back to the 6% average it held before 2020.

All things considered, the pros outweigh the cons for me. It’s hard to ignore the impressive recovery the company has achieved over the past few years. 

From a long-term perspective, I’m optimistic about the company’s prospects.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Marks and Spencer right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Marks and Spencer made the list?

See the 6 stocks

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.

Mark Hartley has positions in Marks And Spencer 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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