Image source: M&S Group plc
He Marks and Spencer Cluster (LSE: MKS) share price is down 6.5% in 2024 as I write. That's a stark contrast to his performance of late.
Over the past year, its share price has continued to rise. During that time, the stock has risen 55.7%. During the same period, the FTSE 100 has increased only 2.5%.
I wonder if this drop is an opportunity to jump in and buy some shares. We are going to explore.
The road to recovery
With its impressive rise, that means its share price sits at 257.8p. As a result, the British icon recently regained promotion to the Footsie.
It has been a long journey for the company. M&S has struggled for years because it seemed to have been left behind by its competition. The retail giant became famous for offering the highest quality. However, much of its operation seemed dated and old-fashioned.
But now things seem to be looking up. And in recent years, the company has implemented a turnaround strategy that has helped it reverse its fortunes.
Chief executive Stuart Machin has been key in bringing the business back into the 21st century. He has implemented measures such as closing high street stores and emphasized boosting his online channels. It's safe to say it's working.
Impressive change
For the 26 weeks ended 30 September 2023, pre-tax profit rose 56.2% year-on-year to £325.6m. Food sales also increased a solid 14.7%.
Its January update on Christmas trading also showed group sales rose 7.2% on a year earlier. All of this is even more impressive when you consider that we have been through a cost of living crisis.
But even after its rise, I still think there is value left in the stock. Today, its shares trade with a price-to-earnings (P/E) ratio of around 13. That's below Footsie's long-term average of between 14 and 15.
Looking ahead, it has forecast that its P/E ratio could fall below 10 by 2025. I feel brave.
Not yet in the clearing
That's all positive news. However, there are some threats that I must consider. While we appear to be past the worst of accelerating inflation and interest rate increases, we are not out of the woods yet. Higher rates squeeze consumers' pockets. This always has the potential to hurt the company's sales.
Higher inflation also threatens to raise wages and costs. The company recently announced it will shell out £89m to reward 40,000 employees with a raise.
The time to buy?
Even with that in mind, I still like where M&S is heading. The business has seen a strong recovery. And with retail sales figures for January and February coming in higher than expected, I'm confident that better times are ahead for retailers.
Falling interest rates will also provide a boost to business. This should lead to a rebound in spending.
I don't expect the stock to replicate its performance over the last 12 months, but I do think it has more to offer. If I had the cash, I would open a position. I think investors should also consider stocks.
