Investors have punished Marks & Spencer’s share price over the past year due to the cost-of-living crisis. The market anticipated that the tougher macro environment, recession even, will reduce consumer spending.
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However, the market may be pricing in an overly negative scenario that is not justified by the price decline.
In its November trading update, the retailer anticipates profits to be north of £200 million (see below). This figure was reaffirmed by the January trading update. That said, MKS’s free cash flow is expected to be negative and may soak up some of these profits.
As to the question if M&S is overvalued or undervalued, in these turbulent times, the company can swing from overvaluation to undervaluation in a matter of months. At £2.8 billion in market cap, that figure sounds about right – although a 30% swing in valuation may happen in a blink of an eye.
Source: Marks & Spence plc
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