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Would I buy Marks and Spencer at its current low share price?

Retail giant Marks and Spencer (LSE: MKS) isn’t in a pretty place. This week, its share price fell to lows last seen in early 2012. While there’s been some recovery since, it’s too small to count. For anyone who’s been observing this company’s share performance over time, it’s no surprise really.  The price has been on a downslide for the past four years, and it’s recently been able to hold its place in the FTSE 100 just by the skin of its teeth as its deteriorating market capitalisation got a boost from a rights issue.

The fact remains though, that it’s a huge brand and one that has been around for a long time. And for these reasons alone, it can’t be completely written off from an investor watch list. With this in mind, I am inclined to untangle the story to get to the heart of how I think an investor should approach this share going forward.

Retail moves online

The first and most obvious question worth considering in my view is, why has the share price dipped so much and for so long? To give some context, the price is presently trading at half the highest levels seen in the last five years and is around 30% lower than the average levels.  

The structural changes afoot in retail, with the advent of online sales and ease of shopping across platforms, have increased competition for established retailers. Other big retailers like NEXT and Superdry have also been reeling from these changes, as evident from their uninspired share price movements over the past year.

M&S is trying to respond to these shifting patterns of consumer behaviour to stay relevant. For instance, it announced the closure of 17 more stores recently, in line with its strategy to move its operations increasingly online. This has already had effects on its financials. It attributed the fall in sales for categories like Clothing & Home for the year ending March 31 to the ongoing closures. The group as a whole saw a 3% dip in revenue and profit before tax declined by almost 10% during the year.

The fact that it’s a UK focused company, with less than 10% of revenues generated internationally, means Brexit-driven uncertainty is likely weighing on investors’ minds as well, diluting the share price performance.

Steps toward a turnaround

Following on from this, the next big question is, can it turn itself around? I’m not entirely pessimistic. Its online Clothing & Home business grew by a healthy 9.8% during the year, increasing market share a little, which to me looks like a step in the right direction. Its outlook isn’t entirely disappointing either. According to CEO Steve Rowe’s statement at the time of the full-year earnings’ release, “we remain on track with our transformation and are now well on the road to making M&S special again.”

On balance, I’m of the view that it’s not a lost bet, but it’s not an immediate investment by any stretch of the imagination either. More evidence of a turnaround is needed to give me confidence in its prospects and its chances of offering healthy investor returns.  Until then, there are better performing companies and sectors to be considered. I’ll sit this one out.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Superdry. 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.