Marks and Spencer (LSE: MKS) shares have risen by around 20% over the last month, making the firm one of the top performers in the FTSE 100 over this period.
The retailer’s shares have climbed by nearly 60% over the last year. On a five-year view, the M&S share price has risen by an impressive 350%.
In this piece I’m asking whether investors should still consider buying M&S shares. Is there still more to come from this impressive turnaround?
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Strong momentum
A few years ago, Marks and Spencer seemed an unlikely choice for an investment success story. Falling sales, dated stock, and unprofitable stores were holding back profits.
Since CEO Stuart Machin took charge in May 2022, much of this has changed. Annual sales have risen by 23% to £13.4bn, while operating profit is up by almost 50% to £864m.
Machin has cut debt, closed unprofitable stores, and led a revamp of the core Clothing, Home & Beauty business. At the same time, M&S Food has continued to carve out a niche as a popular choice for shoppers looking for an affordable upgrade from the big supermarkets.
The company’s most recent trading update covered the last 13 weeks of 2024 – including the all-important Christmas period. Total group sales rose by 5.6% to £4.1bn.
Food sales were up by 8.7%, including the “biggest day” ever.
Meanwhile, the group’s Clothing, Home & Beauty division achieved its biggest ever week of online sales.
Is a slowdown likely?
I think there are some good reasons to take a more cautious view on M&S shares. First of all, this business is not as cheap as it was.
As I write, the shares are trading on around 13 times 2025/26 forecast earnings. A year ago, Marks and Spencer’s forecast price-to-earnings ratio (P/E) was only 10.
A P/E of 13 isn’t expensive for all types of business. But M&S is a large, mature retailer operating in a sluggish UK economy. Profit margins are relatively low.
Growth over the last couple of years has been boosted by operational improvements. With many of these changes now complete, I am not sure if recent growth rates will be sustainable. Slowing growth could put pressure on the stock’s valuation.
There’s also the risk that new problems could hit the business. On 22 April, M&S revealed that its store operations had been hit by a recent cyberattack. According to some press reports, click and collect services were disrupted.
The company hasn’t revealed any details about the attack. But events such as this can be costly and take time to resolve.
M&S shares: buy or avoid?
All investments carry some risk. But I think there are some good reasons to remain positive about Marks & Spencer. This business has a huge footprint in UK retail and is operating much more competitively than it was a few years ago.
Online growth is also a positive. Many shoppers expect a seamless blend of in-store and online retail, and M&S is well positioned to provide this.
Meanwhile, the M&S Food business could do well, even in a recession, as shoppers buy treats to eat at home instead of dining out.
Overall, I think M&S is still worth considering as a possible investment.
