It’s not often I get to open with a headline about Marks & Spencer (LSE: MKS) spiking upwards. But that’s what’s been happening over the past week. I’m writing this on 26 August. And since the market closed on 19 August, the Marks & Spencer share price has climbed a whopping 26%.
So what’s it all about? It seems like only days ago I was looking at the latest trading update, and musing on the 14% price rise of the time.
Oh, it was only days ago. The trading update can’t be the only reason for the continuing surge. It was generally positive, with total revenue up 4.4% over the same period in the 2019/20 year. That’s a good comparative, and it shows revenue getting back to pre-pandemic levels, even if the M&S share price isn’t.
But we saw the same old story. Despite recent upbeat noises about the company’s fashion ranges, Clothing & Home revenue fell again. This time it dropped 2.6%, and it took food sales to turn the overall figure positive. And that’s because food and groceries retail is in hot demand these days.
Takeover contagion
The takeover battle for Morrisons has been the trigger. The apparently winning offer values the company at £7bn. And that’s a very nice profit for those who held the shares before the bidding commenced. So, do any of today’s cash-rich US private equity firms have their eyes on the UK flagship high street chain? And could long-suffering shareholders finally get their reward from a fat takeover price with a big premium over the current M&S share price?
We obviously can’t know. But that hasn’t stopped speculation moving first to Sainsbury, giving its share price a sharp boost. The enthusiasm also spread to Ocado, M&S’s big partner in the grocery delivery business. Ocado shares haven’t moved up quite so sharply, but it’s a business with a very different valuation model.
So, the big question in my mind is… should I buy Marks & Spencer shares now? Well, firstly, I’ll say that I’d never buy a stock purely in the hope of a takeover. Speculation tends to push up prices for all the anticipated targets. But the potential acquisitors aren’t going to have the cash to buy them all, and some speculators will surely be disappointed.
M&S share price valuation
But I’ll buy a stock if I think it’s undervalued and is one I’d be happy to keep for 10 years. If I’m hoping for a quicker profit than that through a takeover, that would be a bonus.
On that score, the Marks & Spencer share price is still down 6% over the past two years, even after the latest sharp rise. So that’s a company whose business is already a little ahead of where it was two years ago, yet the shares are still lagging.
Of course, there’s a lot more to it than recovering revenue. I want to see how profits are going. And, of critical importance, I want a close look at the balance sheet. We’ll know more when M&S releases first-half results on 10 November.
But if I do buy, it’ll be as a long-term hold, and not just on takeover speculation.