The Marks & Spencer (LSE:MKS) share price has been on a downward trajectory since the turn of the year. Let’s take a look at what’s been happening, and I will decide if I should buy M&S shares for my holdings.
Retail giant
Marks & Spencer, best known as just M&S, is a high street retail chain with roots stretching back over 120 years. It primarily sells clothing and food in its 400 stores in the UK, 150 overseas, and its online store too.
So what’s the current state of play with the M&S share price? Well, as I write, the shares are trading for 136p. At this time last year, the shares were trading for 152p, which is a 10% drop over a 12-month period. More recently, the shares have dropped from 238p since the beginning of January to current levels, a decline of 42%.
I believe M&S shares have been on a downward slump recently due to macroeconomic headwinds. Soaring inflation, the rising cost of raw materials, and the global supply chain crisis has put many businesses under pressure. The stock market correction in March, caused by geopolitical tensions, did not help the retailer either. So is now a buying opportunity or should I steer clear of M&S?
For and against buying M&S shares
FOR: Although no business is “too big to fall,” M&S’ history, profile, and record do boost my investment case. It has continued to operate and perform consistently through two world wars and numerous recessions. The current headwinds could be temporary and M&S has a history of navigating stormy waters and emerging on the other side.
AGAINST: Current macroeconomic headwinds, especially rising inflation and higher costs of raw materials are a real worry for me. Is this a temporary issue or are these new costs the new normal? Either way, profit margins will be squeezed, having a material impact on any returns I hope to make.
FOR: M&S shares look good value for money right now too on a price-to-earnings ratio of just seven. This is much lower than the FTSE 100 average of 15. What will help performance and growth is the fact it owns 50% of online grocer Ocado, which has experienced major growth in recent years. This growth is forecasted to continue too.
AGAINST: Rising interest rates is bad news for M&S shares. It has close to £3bn of debt on its balance sheet. I’m usually put off by lots of debt on a balance sheet and in the current macroeconomic climate, this could affect performance and the returns of a potential investor.
What I’m doing now
Right now, I will not add Marks & Spencer shares to my holdings. The negatives are outweighing the positives for me. Macroeconomic headwinds are having a real impact on its investment viability in my view.
I will keep a keen eye on developments, however, specifically M&S’ next trading update, which is expected at the end of May. This could shed more light on the investment viability of the shares moving forward and could tempt me to reconsider my position.