As you can see from M&S’s long-term chart below, its overall trend is simply dismal. Prices are now lower than the lows established during the 2008 global financial crisis. If we measure the stock’s drawdown (peak-to-bottom in percentage change), the figure is even worse. At 150p, Marks & Spencer share prices are 75 percent below its 1997 peak of 600p! It begs the interesting question: Is MKS a long-term buy?
Cheerleaders of the stock will point out that M&S is more likely to survive the next few decades as it has done so since 1880s. For one, its brand is strong. Thousands of loyal customers up and down the country shop in ‘Marks and Sparks’ food stores every week. Internationally many shoppers still remember the retailer from its ‘St Michael’ brand. And the company is moving in the right direction, ie, internet-based partnership with Ocado and using ‘omni channels’ to deliver products to customers.
In the latest RNS, the company’s food division did well. “M&S Food outperformed the market on volume and value in the critical four-week Christmas period for the second year running and reached its highest ever recorded market share.“
And today (Jan 23), the company announced it is investing £480 million in creating 20 physical large stores (creating 3400 jobs costing). Clearly M&S is on the offensive not just playing defensive.
In other words, the company, despite its disastrous share prices, remain a viable investment proposition.
However, there are many negative points too.
- M&S is an age-old retailer struggling to perform in a ‘modern’ age. Growth is hard to come-by; as are profits.
- The younger generations are turning elsewhere. Meanwhile, M&S is just starting to harness internet-based shopping whereas other retailers are moving ahead already. Large investments needed to enhance its business.
Why would anyone invest in a company that needs to spend big just to stand still? There are many other stocks out there that have growth potential at a cheaper price, like tech stocks.
Think about this. Ocado (LSE:OCDO) is now valued at £6.3 billion despite an ongoing severe bear trend in its stock. As for M&S – a mere £2.9 billion, half the size of Ocado. Why is the market preferring Ocado to M&S? Growth.
Therefore, M&S may appear to be an interesting ‘value stock’ to pick for one’s long-term portfolio but investors have to guard against a further deterioration of the UK consumer spending power. The stock is trying to form a ‘base pattern’ that may take years to complete. If I were to start a fresh position here I would not overweight the retailer too much at current prices.