Marks and Spencer’s (LSE: MKS) share price has dipped from last year’s highs, making the retail giant’s stock appear cheap to some. But the real issue is what the underlying business is actually worth.
Price and value often drift apart in shares, especially when a business turnaround is gathering pace beneath the surface. In this case, M&S’s revival in Food and Clothing is now showing up in sustained market‑share gains and a far healthier adjusted earnings profile than the headline numbers imply.
So, how does the earnings trajectory look now, and how wide is the price-to-valuation gap?
Strong earnings momentum?
Earnings growth ultimately drives any firm’s share price. A risk to M&S is any further cyberattack of the sort announced last April, which prompted the share price slide. Another is any slowdown in UK consumer spending that could squeeze discretionary sales.
That said, consensus analysts’ forecasts are that M&S’s earnings will soar by an average 34% a year over the medium term. It latest major results (H1 2025) look supportive of this, with sales jumping 22.1% year on year to nearly £7.9bn. The number underlines the strength of M&S’s multi‑channel model (stores, online, third‑party partnerships), and the benefits of consolidating Ocado Retail.
Food remained the standout performer, with sales up 7.8% to £4.5bn. This underscored the continued success of its value‑and‑quality strategy and three years of consecutive monthly volume growth.
The International division also contributed positively, with operating profit up 24.3% to £13.3m, illustrating the gains from its commercial reset.
Together, these drivers point to a business with clear momentum as systems reset following the cyber incident and new investment pays off.
What’s the real value of the shares?
With that operational momentum in place, the next question is what all this progress means for the stock’s valuation.
Discounted cash flow analysis allows investors to identify where any share should trade by projecting future cash flows and ‘discounting’ them back to today.
Some analysts’ DCF modelling is more conservative than mine, due to the data used. However, based on my DCF assumptions (including a 7.5% discount rate), M&S shares are 58% undervalued at their current £3.52 price.
This implies a fair value for the shares of around £8.38 — more than double where they trade today.
So that gap suggests a potentially superb buying opportunity to consider today if those DCF assumptions prove accurate.
My investment view
With earnings momentum building and the price-to-valuation gap still wide, I see M&S as a compelling opportunity.
The combination of strong Food performance, improving group profitability, and the long‑term benefits of Ocado Retail makes me optimistic about the earnings trajectory.
On that basis, I will be buying more shares soon, and I think they are worth the attention of other investors too. I also have my eye on other deeply discounted, high-growth stocks…
