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People often think of Marks and Spencer (LSE: MKS) as a stolid, slightly unexciting choice when it comes to shopping. Yet over the past five years, the Marks and Spencer share price has been anything but boring. During that period, it has soared 269%.
The business continues to perform strongly. Last year, for example, profit before tax and adjusting items showed year-on-year growth of over a fifth.
So, could the Marks and Spencer share price still have room to run that could make it a smart buy for my portfolio even now?
A mixed bag
I feel a bit torn when it comes to deciding how best to judge the famous retailer. On one hand, I think the brutally competitive British clothing retail sector is not a great business to be in. Yet after seeming to lose its way for a number of years, M&S’s fashion business appears to have hit its stride again.
The brand remains strong and has a big following. It seems to have introduced more collections that appeal to shoppers’ ever-shifting tastes. Last year was the third in a row when the company’s fashion, home and beauty division grew its market share.
Meanwhile, its food business continues to do well even in a crowded and competitive market. However, a cyberattack this spring saw empty shelves in many M&S stores for an extended period of time. That will eat into this year’s performance, although the company sounds upbeat about the prospects of covering a large part of the costs with insurance payouts.
With that unfortunate incident now behind it, Marks and Spencer is back to normal. On recent visits to several of its food halls, there has been a bustling atmosphere as its products continue to fly off the shelves thanks to their ongoing popularity with a large, loyal customer base.
Business valuation looks costly
Still, although the retailer is far from the only victim of a cyberattack, its slow response to getting many basic products back on the shelves in some of its shops near me made me question the quality of its current leadership.
That continues to play on my mind as a possible risk when it comes to navigating any other unexpected challenges thrown up by the UK retailing environment over the coming years.
Meanwhile, the valuation now looks steep to me after the stellar performance of the Marks and Spencer share price in recent years. The share now sells for around 25 times earnings.
I see that as high. Marks operates in a very competitive market and its net profit margin last year was just 2%. Although it has been growing sales, to keep doing so will require sustained effort as consumers feeling the economic pinch cut back spending and a host of rivals nip at the company’s heels.
That does not mean the share price might not still go up from here, if Marks and Spencer puts in a very strong trading performance. But I do not find the current valuation attractive, so will not be adding the share to my shopping basket.
