I am incredibly optimistic about the prospects for the Marks and Spencer (LSE: MKS) share price in 2022.
Over the past year, the company’s turnaround, which seems to have been in progress for over a decade, has finally started to take hold.
The market is waking up to its potential. The stock hit a multi-year low of 85p in May 2020 but has since recovered to around 232p. That is about the same level as it began 2020, before the coronavirus pandemic started.
However, the stock is still trading below its 2019 high of 280p per share, despite this recent performance. If the company continues to push ahead with its restructuring and growth ambitions, the stock could return to this three-year high. It could even move back towards 300p if trading outperforms expectations.
Marks and Spencer share price outlook
Of course, it will always be impossible to predict the future of any company’s share price with accuracy. I do not know what the future holds for any business or the economy.
Still, if I assume that the economy continues to rebuild over the next 12 months in much the same way as it has done over the past 12, I think Marks’ top and bottom lines will expand. The firm’s recent changes are clearly having an impact on consumers. Its joint venture with Ocado is also outperforming expectations, which is a testament to its brand.
It seems likely that a good deal of the company’s recent growth has been powered by rebounding consumer spending. This is unlikely to last. However, I think there is a strong chance that the group has convinced shoppers its offering has improved, which could support more spending.
Indeed, City analysts believe the firm’s profits will hit £409m in its current financial year and £367m in 2023. These are the highest number since 2017.
Undervalued
If the company can hit these targets, the stock looks cheap at current levels. It is selling at a forward price-to-earnings (P/E) ratio of just 11.4. Considering the firm’s brand and growth potential, I believe this undervalues the enterprise.
That being said, the firm will have to overcome some headwinds that could hit growth as we advance. These include the supply chain crisis and inflationary pressures. Rising costs could push consumers to change their buying habits or put off purchases.
Still, even after taking these risks into account, I think the outlook for the Marks and Spencer share price in 2022 is encouraging. The double tailwinds of rising consumer confidence and economic growth should support the company’s revenue expansion. Its decisions to refresh its stores, product lines and reduce costs will provide further tailwinds to support growth.
While the company has underperformed expectations more times than I can count in the past, all of the above seems to suggest that the group is finally ready to pull itself out of a multi-year decline.