M&S (LSE: MKS) (NASDAQOTH: MAKSY.US) is a company in which I have been an investor for a long time, but I think now is a great time to add to my holding.
For starters, shares in M&S have had a great year and are now the highest they have been in the post-credit crunch era. Indeed, they have risen by 25% in 2013 to their current price of 475p, which shows just how strong sentiment has been over the course of the year when the FTSE 100 has made gains of 14% over the same period.
However, I think the shares have further to go and that the stock market is buying into the strategy employed by the company — as evidenced by the strong sentiment. Therefore, I believe that the heady heights of £7+ which were last achieved in 2007, while some way off at the moment, are not beyond the realm of possibility.
In addition, shares have fallen slightly after reaching over £5 and, I feel, this could be a good entry point.
Of course, a bullish share price chart is not the only reason why I’m thinking of adding to my holding in M&S.
I also feel that shares offer good value for money at current price levels, as shown by a favourable price-to-earnings (P/E) ratio.
For instance, shares currently trade on a P/E of 12.8, which on an absolute basis is attractive when the quality of the company is taken into account. Indeed, I think that shares offer good value on a relative basis too, with the FTSE 100 trading on a P/E of 15 and the wider general retail sector (to which M&S belongs) trading on a P/E of 16.2.
Clearly, M&S is not perfect but I question whether such a wide discount to its sector and to the index is warranted. Therefore, I am optimistic that this discount will narrow over the medium to long term.
So, I’m bullish on M&S and am thinking of adding to my shareholding because the share price chart indicates that sentiment is strong, with shares reaching their highest level in over 6 years. Furthermore, a hefty discount to the sector and index P/Es is, in my view, unlikely to last over the medium to long term, so I think that now could be a good time to increase my stake.
