Marks and Spencer (LSE: MKS) shares have taken a beating over the last 3 months, falling 31%. This bearish trajectory came after an astonishing run in 2021, when Marks and Spencer shares rose 69%. The largest driver behind the recent decline is rising inflation, which is pushing up costs for the retailer. With the shares currently at 140p, is now the time for me to add this stock to my portfolio? Let’s investigate.
Marks and Spencer shares: the story so far
When the pandemic hit in March 2020, it wiped almost 50% off the value of M&S shares in a matter of weeks. The shares hovered around the 100p mark until the end of 2020, when things started to pick up again. Then, as mentioned, the share price skyrocketed throughout 2021. This was the case across the retail grocery sector with competitors Tesco and Sainsbury’s both rising 17% in the last three months of 2021. During this time, M&S released its most recent results, for the six months to November 2021, in which it said profits had risen 52% and debts had been reduced by 22%. These positive numbers helped push the shares even higher.
However, since then things seem to have been going wrong for the grocer and general merchandise retailer. The biggest driver behind the share price fall in 2021 is rising inflation. In March, the UK Consumer Price Index rose 7% year on year, its highest level in 30 years. For M&S, rising inflation will translate directly into rising costs, which will force it to raise its own prices. This prospect seems to have turned investors sour on M&S stock. To combat rising inflation, the Bank of England has already begun to hike interest rates. With over £3bn of debt on its balance sheet, rising rates are bad news for M&S.
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Reasons to be cheerful
Marks and Spencer shares currently trade on a forward price to earnings (P/E) ratio of 7.3. To me, this highlights the value of the stock at 140p. This value is confirmed by bullish analyst sentiments issued by some of the top investment banks. HSBC and Jeffries both rate the stock a buy, with price targets of 170p and 180p respectively. This gives me confidence in the stock’s future direction.
In addition to this, grocery delivery service Ocado, of whose retail ops M&S owns a 50% stake, is set for rapid growth over the next few years. It expects orders to increase by 100k a week by FY23, which should add significant revenue to M&S. The firm is also pouring cash into new ventures like clothing rentals, live shopping, and click & collect services. I think these moves are smart in order for M&S to remain competitive in its market.
My verdict
With inflation and interest rates still on the rise, it seems like the shares have a rocky road ahead. However, I think that at the current price they do offer great value. Bullish analyst estimates and growing parts of the business appeal to me, and I am considering adding the shares to my portfolio. The next set of results is set to release on 25 May, and I will be waiting until then to make my move.
