The last year has been highly eventful for Marks & Spencer (LSE: MKS). The retailer has unveiled a refreshed strategy which includes a move into online grocery shopping. Its financial performance has continued to disappoint, while its share price has been highly volatile.
Looking ahead, the stock could offer long-term return potential. It appears to have a low valuation and an improving financial outlook. It could therefore be worth buying alongside another cheap FTSE 350 share which released results on Friday. Both stocks could offer retirement saving potential, and help investors to overcome a rising State Pension age.
The company in question is specialist building materials supplier SIG (LSE: SHI). Its full-year results showed it made significant financial and operational progress in 2018, with underlying revenue moving just 1.2% lower in challenging market conditions. It has focused on profit rather than sales growth, which is evidenced by an increase in gross margin of 50 basis points to 26.7%. This helped to drive underlying pre-tax profit 25% higher to £72.7m, in line with expectations.
The company continues to face an uncertain future. However, its transformation strategy seems to be gathering pace, and is forecast to post a rise in earnings of 16% in the current year. Despite its growth potential, the stock has a price-to-earnings growth (PEG) ratio of just 0.7. This suggests SIG could offer growth at a reasonable price, and may be able to deliver impressive capital growth over the long run. As such, now could be the right time to buy it as it appears to be overcoming the challenges which have held it back in recent years.
As mentioned, Marks & Spencer has started to execute its revised strategy in recent months. Essentially, it’s seeking to make the company more appealing to an increasingly demanding consumer. Shoppers now expect a slick website and a true omnichannel offering as standard. As such, Marks is investing in a variety of areas, including an improved website, more efficient supply chain, as well as online grocery shopping through a partnership with Ocado.
In the short run, such major changes will require significant investment. However, with a rapidly changing retail environment becoming increasingly focused on mobile devices, it appears to be a major requirement should the business wish to remain relevant among consumers.
With the company’s share price having declined in recent weeks, it now trades on a price-to-earnings (P/E) ratio of around 10. This suggests a margin of safety may be on offer, and there could be scope for a sizeable upward rerating over the long run. Although it may take time for Marks & Spencer to deliver its refreshed strategy, in time it could produce stronger financial results and act as a catalyst on its share price. Therefore, it could offer value investing potential.
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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.