Tesla (NASDAQ: TSLA) stock had another stand-out year in 2023, skyrocketing over 100%. However, this momentum seems to have been lost in 2024, with the shares falling 19% this year.

With the shares trading over 50% lower than their all-time high of $407, should I be looking to add this electric vehicle stock to my portfolio? Let’s take a closer look.

Volatile history

Tesla has a notorious history of volatility. The stock currently has a beta of 2.4, meaning that for every 1% the market moves, Tesla shares tend to move 2.4%. As a rule of thumb, I look for stocks with a beta in line with the market to help manage volatility within my portfolio.

In addition to its volatility, the stock trades at a huge price-to-earnings (P/E) ratio of 46. This means that investors value the stock at 46 times its earnings. As an avid value investor, I tend to look for stocks that trade below a P/E ratio of 10.

The Nasdaq, where Tesla is listed, currently has an average P/E ratio of 27. The index largely consists of high-growth stocks. Given that Tesla shares currently trading at a significant premium to this average, it doesn’t fill me with confidence.

In addition to this, analysts at HSBC recently dropped their target price to $146 for the stock, a steep decline from the current price of $199. More worryingly, they identified Elon Musk, Tesla’s CEO, as a “single-person risk” factor. Musk’s vibrant leadership has indeed propelled Tesla to a market-leading position, but there have been many instances where the share price has tumbled off the back of his actions.

Self-driving revolution

Tesla has long led the charge for fully self-driving (FSD) vehicles. While the target of full autonomy is yet to be achieved, Tesla has made significant progress in driving AI-powered FSD already. Human oversight is required at all times, but its vehicles can brake and accelerate on their own, as well as steer and change lanes.

So, what does this mean for business performance? In an interview with CNBC in May last year, Musk announced that the opportunity for AI integration in Tesla’s business model is “gigantic”, adding that “It’d be like selling cars for software margins because, in fact, it is software. And so, instead of effectively having, say, 25% margins, it might be 70%, or more”.

If Tesla is able to achieve this kind of margin expansion, its profits would soar. This would no doubt fuel a boom in share price.

Should I buy now?

Personally, I like to target lower-risk, high-yielding stocks. Unfortunately, Tesla does not fit this bill. The story is exciting of course, and I will continue to closely follow Elon Musk on his journey to full self-driving cars. However, the high volatility and punchy valuation are too much for me to ignore. At $199 I won’t be buying.

The post Is Tesla stock a steal below $200? appeared first on The Motley Fool UK.

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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and Tesla. 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.

China-based electric vehicle manufacturer NIO (NYSE: NIO) has continued to struggle in 2024 — at the time of writing, the stock is trading just under $6.

This bearish trajectory is part of a longer-term trend NIO has faced over the past few years. Since its all-time high of over $60 in early 2021, the stock has tumbled a whopping 90%.

However, with a market cap of over $12bn, it still has a sizable presence. Considering the 2024 share price performance so far, coupled with the wider decline, could now be the time to add this EV manufacturer to my portfolio? Let’s investigate.

Encouraging results

One thing that has always driven me to NIO is its high growth. While the company is loss-making, its sales figures have continued to expand throughout the last few quarters. In its Q3 2023 results, revenues surpassed $2.3bn, marking a 46% increase from the year prior. For 2022, the story was the same, with full-year figures rising 37% year on year.

While NIO is not yet profitable, it’s certainly moving in that direction, with margins increasing 24% year on year for Q3 2023. The strategy employed by NIO is not unusual for high-growth tech companies. The focus initially is not on delivering profit, but on using debt to scale the business. Therefore, when the coin flips and the business does turn profitable, it can deliver big. This happened with Tesla in 2020.

NIO will release its Q4 and full-year results next week. I will be eagerly waiting to see if they can top these figures. If they can deliver solid results, I think it could help reverse some of the bearish sentiment towards the stock.

Why I’m not convinced

There are a few main reasons why I think NIO stock could continue to struggle this year. Firstly, global interest rates have risen significantly in the past 18 months. NIO holds over $4bn in debt, and with high-interest rates expected to continue through much of 2024, the company could face some substantial interest payments. This kind of burden is the last thing NIO needs as it navigates its way to profitability.

That being said, in its Q3 results the company announced the completion of the sale of $1.15bn of senior notes, “further strengthening our balance sheet and powering our continuous endeavors to navigate the intense competition” added Steven Wei Feng, NIO’s CFO.

Furthermore, with Trump leading in election polls in there US, there’s a possibility of a more aggressive stance toward Chinese trade from the US in the future. This could impede NIO’s expansion into the American EV market, which is crucial for its growth.

The verdict

Overall, I think NIO will continue to face hurdles, at least in the short term. I will be eagerly awaiting the 2023 full-year results next week before deciding whether to make my move at the current share price. At present, however, I won’t be buying.

The post NIO stock is down 31% this year: is now the time to buy? appeared first on The Motley Fool UK.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. 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.

Since the market highs of late 2021, the FTSE 250 has suffered sustained macroeconomic volatility, falling almost 30% from November 2021 to October 2023. However, things seem to be picking up for the UK mid-cap index. In fact, its price has risen double digits in the last three months.

The primary driver behind this is that the UK economy seems to be steadying. Red-hot inflation figures have started to fall back to normal levels, and interest rates have been kept at a stable rate of 5.25% for the last few months. With this stability, UK businesses can plan ahead more effectively.

With this stability also comes more positive investor sentiment. While there is no way of predicting potential shocks to the market, there is a chance that this positive sentiment could translate to a fruitful year for the mid-cap market.

Quality UK businesses

The FTSE 250 includes the 250 largest UK companies by market-cap after the FTSE 100. On the whole, this means it is primarily comprised of good quality stocks. I am always on the hunt for quality businesses, and given the index is down almost 7% in the last 12 months, I think now could be a chance to buy these stocks for cheap.

It has risen by just 2% over the last five years. The FTSE 100, on the other hand, is up almost 8%. With mid-cap stocks lagging the market leaders, it reinforces my understanding that the shares might be undervalued.

How I would invest

It should be noted that recoveries can be just as volatile as downturns. This is especially the case in the early days when investor scepticism remains high. For this reason, I favour investment methods such as pound cost averaging. This is where I would drip-feed cash into FTSE shares each month instead of investing a lump sum figure. This helps me ride out month-to-month volatility.

I would also target high-yielding dividend stocks as it allows me to generate passive income. Not only is passive income great for increasing cash returns, but it also gives me scope to reinvest my earnings, to compound my returns.

One stock that I think fits this bill is ITV (LSE: ITV). ITV currently trades on a price-to-earnings ratio of 8.5, which is well below the FTSE 250 average of 12, and the FTSE 100 average of 14. In addition to this, the stock comes with a whopping 8.5% dividend. This is significantly higher than I would expect to earn in any savings account.

I do see some risks for ITV, such as intense competition from the likes of US competitors Netflix and Disney. However, given the established UK brand presence, cheap valuation, and hefty dividend, I think the stock could be a top FTSE 250 steal right now.

Of course, If I wanted to buy more FTSE 250 shares all under one investment, I could use an index tracker like the Vanguard FTSE 250 UCITS. Either way, if I had the spare cash, I would be considering buying now.

The post Do FTSE 250 stocks still look cheap in 2024? appeared first on The Motley Fool UK.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. 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.

The Shell (LSE: SHEL) share price has delivered investors market-beating returns over the last 12 months. While the FTSE 100 is down 2.5%, Shell shares have climbed over 6%.

That being said, so far in 2024 the stock has dropped almost 4%. However, given the company’s recently announced results, could this be set to change over the next year? Let’s take a closer look.

Excellent results

Yesterday (1 February), Shell released its 2023 Q4 and full-year results. Its full-year earnings came in at $28bn, 29% lower than the prior year when it posted record earnings of just under $40bn. However, this is to be expected given the spike in oil prices after the crisis in Ukraine began in 2022.

A stat that caught my eye was Shell’s earnings in Q4 specifically, which beat analyst expectations. Analysts had anticipated the oil giant’s earnings to be around the $6bn mark, but they actually topped $7bn.

The company attributed its results partly to robust margins from liquefied natural gas trading, which offset lower performance in oil products trading.

Shell also disclosed a 4% uptick in dividends for Q4. As a keen passive income investor, I am always on the lookout for encouraging stats like this.  

Additionally, the company unveiled plans for a $3.5bn share buyback programme for the upcoming three months. This initiative builds on the previously announced $3.5bn share buybacks from November last year, which have now been completed. It’s always a good sign when a company buys back its shares. By reducing the number of shares out there, dividends are shared by fewer investors, and hence yields are pushed up.

My thoughts on valuation

Looking at Shell’s price-to-earnings (P/E) ratio, I also see value. Currently trading at just over seven times earnings, the stock is below my ‘value’ barometer of 10. For context, the FTSE 100 average P/E ratio is currently hovering around 14.

In addition to this, Shell’s primary competitors, the US oil behemoths Chevron and ExxonMobil, carry significantly higher P/E ratios, standing at 10.2 and 11, respectively. This signifies to me that the current Shell share price could be undervalued.

Uncertainty ahead

One of my primary concerns with oil giants like Shell is that they essentially need to reinvent themselves in the next few decades. With the world moving towards renewable energy, Shell must find new ways to generate profit.

That said, demand is expected to stay strong in the short term. In fact, according to the International Energy Administration, natural gas demand is expected to increase by five times this year.

The verdict

Overall, I like the look of Shell shares for my portfolio. Given the current low valuation and encouraging results, I think the shares could pick up this year. While some uncertainty remains over its transition to green energy, now could be a great time to buy for long-term growth. If I had some spare cash I’d be investing today.

The post Is the Shell share price poised for take-off in 2024? appeared first on The Motley Fool UK.

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Dylan Hood 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.

The GSK (LSE: GSK) share price seems to have gained some momentum over the past six months, rising over 15%. Half of this growth has come in 2024 alone.

Even after this share price rise, I think the shares look pretty cheap. For this reason, I am debating whether to add this UK pharmaceutical stock to my portfolio today.

Valuation and dividends

One of the primary drivers behind my interest in GSK stock is its low valuation. Currently trading on a price-to-earnings (P/E) ratio of under 10, the stock does look cheap to me. For context, the FTSE 100 average P/E ratio usually hovers around 14.

Looking at GSK’s competitors, the stock looks even better value. For instance, Pfizer traders on a P/E multiple of 72 and AstraZeneca trades on a P/E multiple of 35. More widely, the pharmaceutical sector average sits around 22. Looking at these figures reinforces my thesis that the shares are vastly undervalued.

In addition to the low valuation, GSK offers a healthy dividend yield of 3.5%. While this isn’t the highest in the Footise by any standard, it’s still more than I could expect to earn in any savings account. What’s more, dividend payments give me the scope to earn passive income for my portfolio, which I can reinvest to compound my returns.

Positive results

Yesterday, GSK issued its Q4 and full-year 2023 results. Total sales rose 5% year on year with operating profit rising by 12%. These are great indicators of positive business performance. Investors seemed to have reacted positively to the news, with shares shooting up over 3% upon market opening.  

Looking forward, CEO Emma Walmsley stated “We expect to deliver another year of meaningful sales and earnings growth in 2024”. In terms of specifics, the business expects sales growth of between 5% and 7%, with operating profits to rise by 7% to 10%.

Dividends are also set to rise to 60p per share, which will help bump up the all-important yield for investors wanting to generate passive income.

Rocky road ahead

One risk I do see for GSK is the high interest rate environment. The typical model for the pharmaceutical industry is to raise capital from external investors, to fund rounds of clinical trials of new drugs.

The problem is that when interest rates are higher, funds find it harder to raise capital from investors. This could slow the progress of drug development, ultimately filtering into lower profits for companies like GSK.

Would I buy now?

I think GSK shares are heavily undervalued compared to the wider market. In addition to this, encouraging results and a positive outlook enhance the investment case. For these reasons, I would be buying GSK shares if I had the spare cash today.

The post Is the GSK share price too cheap to ignore? appeared first on The Motley Fool UK.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca Plc and GSK. 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.

Scottish Mortgage Investment Trust (LSE: SMT) was a standout performer in the post-pandemic bull market, with its share price soaring over 100% in 2020. This explosive growth continued into 2021, when the shares topped out at their all-time high of over £15.

However, the choppy macroeconomic climate of 2022 soon put an end to this bull run. In fact, since the start of 2022, the shares have tumbled over 40%. In 2024, the returns have been flattish so far, with the shares sitting at 775p each as I write.

Past returns are no indication of future performance, but with the shares sitting at almost half their 2021 levels, is this investment trust just too cheap to ignore? Let’s take a closer look.

Tech volatility

Much of the reason for Scottish Mortgage’s demise is tied to the macroeconomic performance of the last 18 months. After the Covid-19 pandemic, inflation figures shot up, prompting a hike in interest rates globally. This was bad news for high-growth stocks that often rely on leveraging debt to fuel expansion.

When this debt becomes more expensive, the bubble often bursts and share prices can come tumbling down. Scottish Mortgage predominantly holds high-growth technology stocks, so this trend drastically impacted its performance.

Looking forward, macroeconomic outlooks remain uncertain. With UK interest rates currently sitting at 5.25%, I think it will be years before we see a low-interest-environment again. For this reason, I think investors will continue to favour stable, defensive stocks as opposed to higher-risk growth stocks. Because of this, Scottish Mortgage shares could struggle to pick up steam.

Why I still like the stock

That being said, I’m tempted to snap up some shares at under 800p.

Currently, the stock trades at a net asset value (NAV) discount of 10.5% per share. NAV per share is the total value of all Scottish Mortgage’s holdings divided by its total shares outstanding. Essentially, it’s the value of its holdings on a per-share basis. The discount represents this figure as a proportion of its share price.

When investment trusts trade at a discount to their NAV, it can often be a sign that their shares are undervalued. After all, at the current share price, every 89.5p I invest is technically worth £1.

In addition to this, Scottish Mortgage shares give me access to 99 companies in one investment. This is great for diversifying my portfolio and benefitting from gains in multiple asset classes.

Additionally, I get access to unlisted private companies. One I particularly like the look of is Elon Musk’s SpaceX.

What I’m doing now

I don’t see Scottish Mortgage shares regaining their 2020 momentum any time soon. However, at under 800p, I think the shares look pretty cheap. Looking at their historical returns and NAV discount reinforces this trend in my eyes.

While the stock must continue to deal with short-term macroeconomic challenges, I prefer to take a long-term view. I think buying now, with a view to holding for at least five years could be a great move. Therefore, if I had the cash I’d buy the shares today.

The post Is the Scottish Mortgage share price too cheap to ignore? appeared first on The Motley Fool UK.

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Dylan Hood 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.

Over the past five years, the easyJet (LSE: EZJ) share price has almost halved in value. The pandemic was the primary driver behind this fall, with the shares dropping over 40% in 2020 alone.

Fast forward to 2024, and the shares seem to be gaining momentum. In fact, they have risen over 10% this year alone. Broaden that horizon to three months, and the shares are up over 50%.

So, can this growth continue throughout the rest of this year? Let’s take a closer look.

Thoughts on value

easyJet shares currently trade on a price-to-earnings (P/E) ratio of 13. This is broadly in line with the FTSE 100 average, meaning the shares are roughly trading at market value.

Looking at competitors Deutsche Lufthansa and International Airlines Group, they trade on P/E ratios of 4.9 and 5.1, respectively. It does lead me to wonder whether easyJet valuation might be a bit rich compared to the rest of the sector.  

However, considering the shares have jumped over 50% in the last three months, I would expect the valuation to look a little more steep than that. UK competitor Ryanair also trades at a higher P/E ratio of 14, which also makes easyJet look like less of an outlier.

Positive results

easyJet recently released strong Q1 2024 results. Group revenues increased by 22% year on year, with over 15,000 more flights completed in the quarter versus the year prior. Passenger numbers also increased from 17.5m in Q1 2023 to 19.8m.

One thing I also noted was the large reduction in net debt, which has fallen by 55%. Now sitting at just £500m, I like to see companies paying down debt in this way. The current historically high-interest rates (at 5.25% in the UK) make this an important move.

I expect it will be some time before these rates start to fall again, so reducing debt means that the firm will spare itself hefty interest payments in the meantime.  

I’m not sold yet

The primary concern I have for easyJet is the close correlation between its performance and fuel prices. As we have seen with conflicts in the Middle East and Eastern Europe, fuel prices can be extremely volatile. Unfortunately, this is out of the airline’s control but drastically impacts its bottom line. In fact, fuel costs tend to account for around 25% of an airline’s total.

easyJet’s business is built around cheap flights. But when the cost of fuel rises, low prices become very tough to deliver. If such prices see another unexpected climb during 2024, the airline will be faced with a tough situation — absorb the additional expenses or increase ticket prices. Either this hurts the company’s bottom line or diminishes its primary competitive advantage.

I am comfortable with the current valuation, and the company has delivered some solid results. However, for me, the airline industry is too risky at the moment, given the potential volatility of fuel prices. For this reason, I am unsure whether the easyJet share price will continue to climb in 2024. Either way, I won’t be buying the shares today.

The post Up 10% so far, will the easyJet share price take off in 2024? appeared first on The Motley Fool UK.

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Dylan Hood 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.

Over the past 12 months, the Tesco (LSE: TSCO) share price has climbed 18%. For context, the FTSE 100 has fallen 2% over the same period, meaning that the grocery retailer has outperformed the UK market by a whopping 20%.

Given the current choppy macroeconomic climate, I think Tesco shares could be a great defensive addition to my portfolio. Let’s take a closer look at why.

Defensive play

So, what is a defensive stock? A defensive stock is an investment typically found in industries like utilities or consumer staples, known for providing consistent dividends and stable performance even during economic downturns.

Tesco is the UK’s leading supermarket chain, meaning it fits this bill perfectly. With most economic outlooks remaining uncertain for the foreseeable future, this could provide my portfolio with some great stability.

Enticing valuation

Tesco shares currently trade on a price-to-earnings ratio (P/E) of 15. For context, the FTSE 100 average hovers around 14, and most good value stocks tend to trade around 10. Given Tesco’s strong reputation and industry presence, I am comfortable with the current valuation.

The stock also offers a comfortable dividend yield of 3.7%. This is not the highest in the FTSE 100 by any means, but it does offer the scope for some passive income generation – something I’ll never say no to.

What’s more, according to current analyst projections, Tesco is expected to distribute 11.6p per share for FY2024 and increase it to 12.9p per share for FY2025. Based on today’s share price at 292p, these payouts correspond to yields of 4.0% and 4.4% respectively.

Tesco has also completed a series of share buybacks since 2021, totalling over £1.8bn. This is great for investors, as fewer shares means that dividends are shared by a smaller pool of investors. This means higher yields for Tesco holders.

Not all plain sailing

One headwind I see for Tesco is the escalating competition from budget supermarkets like Aldi and Lidl. These stores have seen a surge in popularity in the UK in recent times, catalysed by the current cost-of-living challenges.

Aldi’s growth has been substantial, winning over one million new customers last year. It also has plans to expand with 500 more stores after reaching its 1,000th in the UK in 2023. Should this growth persist, it poses a substantial threat to Tesco’s market share.

Although UK inflation has started to ease, I expect it will be some time before we see this filter down into lower prices of everyday goods. Tesco will have to work hard to keep its prices down in the face of its cheaper counterparts.

Can the price rise further?

So, with all things considered, do I think the Tesco share price can rise higher in 2024? Absolutely, given its defensive nature and bullish analyst estimates. If I had the spare cash, I would be investing today.

The post Here’s where I think the Tesco share price could be headed in 2024! appeared first on The Motley Fool UK.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco 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.

The BT (LSE: BT.A) share price has performed pretty poorly compared to the wider market. Over the last 12 months, the shares are down 11%.

However, at just 114p, I think this defensive stock could be a great addition to my portfolio. Let’s take a closer look at why.

Valuation

At the time of writing, BT shares trade on a price-to-earnings ratio of just six. This is less than half the FTSE 100 average of 14. For additional context, I usually consider good value stocks to trade below 10.

Along with this low valuation is a meaty dividend, currently yielding 6.7%. This is significantly above the UK market average and much higher than I could expect to earn in a savings account. Therefore, even if the stock price flatlined, I would still be generating some healthy passive income for my portfolio.

While dividends are never guaranteed, BT’s current dividend coverage ratio (the ratio of earnings to dividends) looks solid, suggesting sustainability in the near future. Additionally, BT operates under a ‘progressive’ dividend policy, aiming to boost payouts in upcoming years, potentially offering solid returns from future payouts.

Institutional investors seem to be sharing its optimism, with research analysts at Barclays and JP Morgan setting price targets of 220p and 290p, respectively. These targets, representing premiums of 91% and 152% to the current share price, make me think BT shares could climb higher in 2024.

Headwinds remain

One of the biggest challenges I see for BT is its large debt pile, which currently sits at £20bn. Considering the market cap is just £11.3bn, it puts the scale of this debt into perspective. With interest rates in the UK having climbed to 5.25% throughout 2023, I expect BT to shell out hundreds of millions in additional interest repayments. This could harm its profitability moving forward.

Chris Dale, the founder of hedge fund Kintbury Capital, expressed concerns at a London conference about BT’s debt levels and suggested that the company’s reinstatement of dividends could backfire down the line. For this reason, the fund has been actively shorting its shares, betting on a future decline in value.

Although the macroeconomic outlook might not bode well for BT and its high debt, it’s still a defensive stock. This means one that operates in a consumer staple industry (such as telecoms), so regardless of market fluctuations, demand tends to stay constant. This coupled with BT’s brand power in the UK does give me peace of mind even in the face of economic uncertainty.

Why I’d buy

The debt levels are concerning. However, in my opinion the shares look too cheap to ignore at 114p. Couple this with the high dividend and defensive nature of the stock, I think the share price could be in line for a rise in 2024. If I had some spare cash, I’d be buying.

The post Here’s why I think the BT share price is a steal at 114p appeared first on The Motley Fool UK.

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Dylan Hood 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.

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.

The post Will the Marks and Spencer share price rise another 120% in 2024? appeared first on The Motley Fool UK.

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Dylan Hood 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.