It’s been a challenging few years for the Marks and Spencer (LSE: MKS) share price. It has declined by 40% in the last five years, with weak consumer confidence and an outdated business model contributing to its disappointing overall performance.
Now, though, the company has a new strategy. It released an update on Wednesday which suggested that its refreshed plan is being delivered. This could provide it with a growth catalyst for the long run. Could it therefore be worth buying alongside another stock which reported positive results on Thursday?
The company in question is specialist insurance business Beazley (LSE: BEZ). It released a trading statement for the first nine months of the year which showed a rise in gross premiums written of 11% to $1,958m. It was aided in some insurance classes following last year’s catastrophe losses. It was boosted by improving performance in the US, where it recorded premium growth of 18%. The company expects this positive momentum to continue, which suggests that it could have a bright future.
Looking ahead, Beazley is expected to post a rise in earnings of 36% in the current year, followed by further growth of 62% next year. These are clearly stunning rates of growth, but the market does not appear to have factored them into the company’s valuation. The stock has a price-to-earnings growth (PEG) ratio of 0.2, which suggests that it could offer a margin of safety. As such, now could be the right time to buy it, with its strategy seemingly sound and it trading at a discount to its intrinsic value.
The update released by Marks and Spencer on Wednesday suggested that the company is getting to grips with changing consumer tastes. It is investing heavily in its supply chain and online capabilities. This could be a shrewd move, since consumers are demanding an omnichannel experience with their favourite stores, and the company has lacked appeal in this sense versus a number of its industry peers.
Other areas which the company is focused on include reducing its profit-dilutive offers across the Food segment, while it is also seeking to deliver major efficiencies over the coming years. Together, these changes could help to support margin growth at a time when the UK High Street is experiencing an uncertain period.
With Marks and Spencer set to report falling earnings in the next two financial years, it is difficult to see a clear financial catalyst for its share price. However, operational improvements could lead to investors adopting a more positive outlook towards its investment prospects. As such, while it could continue to underperform versus some of its slicker retail sector peers over the short run, the changes being made to its business model could create a stronger entity in the long run. Therefore, now could be the right time to buy it ahead of a period of intense change.
Peter Stephens 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.