The Marks & Spencer share price is down 12% in the last month. Would I buy?

With the Marks & Spencer share price falling, is the stock truly cheap or could it lose an investor money?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The stats prove that retailer Marks & Spencer (LSE: MKS) was one of the worst performing shares of 2019. The shares fell by 20% last year, when the FTSE 250 of which it’s now a part moved strongly in the opposite direction. This shows that investors have serious concerns about the group, and understandably so.

Poor sales continue

It’s unlikely the share price will revive any time soon. Sales over Christmas were hampered by poor stock management, with Marks & Spencer stocking skinny jeans and the wrong sizes. It’s far from the first time M&S has had these types of issues. It didn’t have enough stock to meet demand for a range promoted by Holly Willoughby, leading to CEO Steve Rowe describing the stock levels as the worst “I have ever seen in my life”.

During the recent third quarter, the troubled clothing & home division suffered a 3.7% drop in total revenue, while the unit’s like-for-like revenue slumped 1.7%.

This gloomy picture follows full-year results to March 30 that showed M&S’s overall profit before tax declined for the third straight year, dropping 9.9% year-on-year to £523.2m. Group revenues also dropped 3% to £10.37bn. This included a 1.8% decline in UK sales, with clothing & home like-for-like sales down by 1.6%.

Clearly M&S is struggling to grow as it battles unsuccessfully to attract and retain new loyal shoppers and react to the decline of the high street. It’s a long time since investors have had any hope of seeing annual growth at the retailer. Although there is one part of the business that is doing better. 

Food is the lifesaver 

While clothing is letting the side down, food is doing better. Like-for-like revenue growth in the third quarter was 1.4% in the division, which led to a 0.2% increase overall in group UK like-for-like revenue.

Although profitability was hit by higher wastage and  profit margins will be at the bottom end of analysts’ expectations, some are reasonably upbeat.

In a tough market, these figures signal a much-improved performance from the retailer and could signal the green shoots of recovery in the ongoing transformation of the business,” said Retail Economics chief executive Richard Lim.

Yet while food may be a silver lining, this is just a single quarter of sales and isn’t on its own necessarily a sign of better things to come. I think even with a P/E under eight, the shares are still too risky to buy. M&S has been chucked out of the elite FTSE 100, slashed its dividend, had to launch a rights issue (sell more shares) just to get to just this point. And there’s plenty more potential for bad news. 

M&S is trying to revive its fortunes via an expensive tie-up with Ocado, focusing its marketing on pricing, stocking vegan products and trying to get shoppers to do a larger weekly shop there. All good ideas, but I’m not convinced it’ll be enough.

While M&S might provides undeniably appealing food to Britain’s consumers, the share price is distinctly less tasty and I for one will be going nowhere near it.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andy Ross has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »