FTSE 250 darling Marks and Spencer (LSE:MKS) has more than doubled in value since hitting its bottom in October. With this amazing value stock seemingly headed for promotion to the FTSE 100, its share price could rise further, prompting potential investors to buy in.
Top marks for the top scorer
The Marks and Spencer share price has dazzled in 2023, rocketing over 70% and gaining 35% since April alone. This retail star is one of the biggest risers this year. But with the stock now up over 100% from its October lows, some investors wonder whether it can continue climbing higher.
For starters, M&S has reinvented itself under CEO Stuart Machin, gaining market share in food and clothing by providing value amid high inflation. Recent results blew past estimates as both revenue and profits surged while making market share gains across all its businesses.
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The company is expanding in clothing and homeware, improving its food range, growing online, and revitalising its international business. As such, it’s no surprise to have seen its brand perception dramatically improve across the board.
While the retail sector is still broadly struggling, it’s worth noting that the company posted record holiday sales. Shoppers flocked to its value groceries and meal deals as budgets tightened and customers ate in more often. Therefore, the company deserves plaudits for executing well in challenging times.
Branding itself
So, what could spur this high-flying stock to new heights then? Well, the firm is targetting long-term growth by improving its supply chains and adopting a franchise model internationally. And currently, this focus on quality over quantity is paying dividends.
The group also has room to expand margins. As costs moderate, management emphasises maintaining price discipline to avoid profit-sapping promotions. Paired with M&S’s strong branding, this allows for pricing power even as inflation cools.
Higher savings rates and low unemployment provide tailwinds for consumer spending too. With budgets stabilising and real wage growth returning, shoppers may return to buying higher-margin discretionary items.
Of course, inflation cuts both ways. Prices need to fall slower than input costs for M&S to expand profitability. The threat of apparel deflation looms as well. For that reason, maintaining brand loyalty will be required to enable sustainable gains over the long term.
A top quality stock
Looking ahead, no stock climbs in a straight line without bumps. Periodic pullbacks and consolidations are normal. Marks and Spencer shares may pause after the blistering rally, but the journey higher seems far from over.
Reigniting growth after years of stagnation is never easy. But leading brands can redefine themselves and recover former glory. Under dynamic new leadership, M&S shows that this revitalisation is possible.
With M&S firing on all cylinders now, its discounted valuation presents a window worth considering. Rather than watch from the sidelines, long-term investors could see sizeable gains by backing this turnaround story.
With the share price doubling, risks of overheating emerge. But at 12 times earnings, Marks and Spencer shares still look reasonably priced for a revitalised conglomerate. For patient investors, this stock could continue its triumphant rise in the years to come.
