M&S (LSE: MKS) shares have returned a monstrous 136% in the last year and in 2023 to date, they’re up over 80%. This rise helped the stock return to the FTSE 100 in September, after dropping out of the index into the FTSE 250 over four years ago.
Such a rise has grabbed the attention of retail investors. Given the impressive turnaround, spearheaded by CEO duo Stuart Machin and Katie Bickerstaffe (and their predecessor Steve Rowe), is there still time to jump on board? Let’s take a closer look.
Share price history
The company’s shares are currently sitting at 227p. While the price has risen substantially in recent months, it remains over 20% lower than five years ago. Although past performance doesn’t guarantee future returns, there are clear signs that investors are willing to pay even more for the shares.
Should you invest £1,000 in BAE Systems right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BAE Systems made the list?
In addition to this, the company still trades on a price-to-earnings (P/E) ratio of 12, which seems reasonable. For context the FTSE 100 average is around 14, and peers Tesco and Sainsbury’s trade on higher P/E ratios of 14 and 29 respectively. This also supports the idea that the stock could have room to grow.
Research analysts also share this view. Out of the 17 analysts covering the stock, the median target price is 245p, which is just under 10% higher than the current price. Considering all these indicators, I believe the stock is reasonably valued despite its substantial surge in price.
New leadership
As mentioned, a large part of M&S’s impressive performance stems from the leadership of its new CEO Stuart Machin and co-CEO Katie Bickerstaffe, plus previous CEO Steve Rowe. His strategies kicked off the recovery and since taking over in May 2022, the current duo have managed to gain market share in both the food and clothing divisions. Recent results surpassed estimates with revenues and profits rising.
The company has also announced plans to expand its clothing and homewares, food, online, and international business divisions. Evidently, the formula is working, and I’m excited to see what else M&S can pull off this year.
Macroeconomic headwinds
Although inflation has eased in the UK in the last few months, it’s still a major concern for UK households, driving up costs and fuelling the cost-of-living crisis. It poses a significant challenge for retailers like M&S as it erodes consumers’ purchasing power.
As prices rise, customers may cut back on discretionary spending, impacting M&S’s sales. Moreover, in an inflationary environment, consumers tend to seek more affordable alternatives. Value retailers like Aldi and Lidl become appealing choices due to their budget-friendly prices, drawing customers away from higher-end stores like M&S.
This shift highlights the need for strategic pricing and value offerings to retain customers, although M&S has previously said that its more affluent customers are less impacted by the current crisis.
What I’m doing now
Despite the challenges posed by the macroeconomic environment, M&S’s recent results give me confidence in its ability to navigate these hurdles. In addition to this, all the metrics indicate to me that the stock has the potential to rise further in the near future. If I had the spare cash, I would be seriously considering adding this stock to my portfolio.
