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With the Marks and Spencer share price near 110p, should I buy the stock?

Young female analyst working at her desk in the office
Young female analyst working at her desk in the office

The Marks and Spencer (LSE: MKS) share price could rise in the years ahead if the company’s growth ambitions are successful.

But perhaps the most remarkable thing about the retail business is that it’s still with us. Over recent years, many of its competitors have disappeared from the nation’s high streets and shopping malls.

The big turnaround effort

However, Marks and Spencer’s journey hasn’t been an easy one. Five years ago, the business posted normalised earnings per share of around 36p per share. But for the current trading year to April 2023, City analysts expect just under 16p per share.

And the share price has mirrored the decline. In April 2015, the stock was above 550p. But today, it’s near 110p. However, the firm hasn’t been sitting around without trying to turn the business around. Efforts have been ongoing for years to make things better. And if they hadn’t been, I reckon we’d have seen the end of Marks and Spencer years ago.

But on top of the company’s turnaround efforts, I think the company’s survival probably owes something to the strength of its brand. And it’s that strength that gives me optimism for the future of the business.

There’s been a lot for the directors to sort out. And the turnaround strategy involved several elements. There’s been a focus on what the firm calls store rotation. And that means its been getting rid of many of its legacy stores that were designed for an earlier era. But it’s also been revamping stores and opening new ones in locations more appropriate for today’s markets.

A drive for growth

There’s been a drive to build up online sales for its food, clothing and home categories. And there’s been ongoing attempts to make the Marks and Spencer offering more relevant and appealing to today’s shoppers.

Looking ahead, the company has recently renewed its top management team and that could bring new energy in to drive growth. And the food category looks like an area with much potential. The company’s partnership with Ocado has opened up a new sales channel.

And M&S food is also going into Costa stores. I think the idea of developing new routes to market is encouraging. And it reminds me of the success experienced by other companies, such as food-on-the-go retailer Greggs.

In recent news, the company completed its acquisition of Gist, the principal contract logistics provider to M&S Food. Chief executive Stuart Machin said the move will “transform” the supply chain and allow the company to invest in its logistics network to enable growth.

Meanwhile, earnings for next year to April 2024 look set to slip a little if City analysts are to be believed. But they are predicting some modest rises in the shareholder dividend. And the forward-looking yield is running just above 5%.

However, I need more evidence the business is growing before buying the stock. And we’ll find out more with the half-year results report due on 9 November.

The post With the Marks and Spencer share price near 110p, should I buy the stock? appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Ocado Group. 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.

Motley Fool UK 2022