Buying shares in Marks & Spencer Group (LSE: MKS) might seem an attractive option for ISA investors right now. At current prices, the clothing-to-foods giant trades on a rock-bottom forward P/E ratio of around 8 times.
Experienced investors will know this meagre rating reflects Marks & Sparks’ frightening risk profile though. They’ll be aware that clothes sales continue to retreat as its competitors run rings around it in terms of both styling and price. So too, they’ll know that huge investment in premium grocery ranges by the UK’s supermarkets has smashed demand at the FTSE 250 firm’s Food division.
More bad news
The coronavirus outbreak of course has damaged trading at Marks & Spencer even more severely. It’s a development laid out in all its gory detail within latest trading details last month. Then, the company said pre-tax profit for the current fiscal year (to March 2021) “could be at or below the bottom end” of its estimates of between £440m and £460m.
Fresh trading news released today from Primark owner Associated British Foods underline the difficulties Britain’s clothes sellers are currently experiencing. The FTSE 100 stalwart has had to eat a £284m writedown on its stock, due to store closures. It said some items exclusive to the spring/summer season, such as Father’s Day merchandise, would be hard to shift. Meanwhile, items already in store and on display would be ‘unsaleable’ when its stores reopen.
Don’t expect a mighty comeback
One advantage M&S has over Primark is that its wares can at least be sold online. Don’t expect this to prove a magic wand for its current troubles however.
This particular retailer still generates the lion’s share of profits from its stores. High Street rival Next makes around 55% of group profits from products sold through its website. It’s a phenomenon probably created by Marks & Spencer’s more mature customer base, a demographic which still spends the most amount of its cash in physical stores.
Go ISA shopping elsewhere
Don’t expect business to surge once the retail giant opens its store doors to the public again though. As I say, M&S has been on the defensive for years now as its wearable ranges have fallen out of fashion. A painful and prolonged UK recession from the second quarter on threatens to keep the tills quite quiet into the start of the new decade. It’s a problem that further Brexit uncertainty, and/or a disruptive exit from the European Union this year, could exacerbate.
So you can keep Marks & Spencer and its mega-cheap shares I’m afraid. It has slumped an appalling 83% in value over the past five years. And there’s clearly little reason for them to break out of their long-term downtrend. I’d much rather go bargain shopping for my ISA on the FTSE 100 instead.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. 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.