Are Marks and Spencer shares heading back up to 700p?

Investors are buying Marks and Spencer (LSE: MKS) shares last October have now gained around 80%.

And that’s a remarkable turnaround for the stock. It had previously been underperforming for years.

But to give it a fresh perspective, the share price is now close to 166p about 8% higher than a year ago.

After years of poor performance, the business finally looked like it could be turned around.

Changing sector conditions

And some factors in the retail sector are now working for the company. For example, much of the competition from grocery retailers has disappeared. And more recently, some fashion retailers that rely solely on internet sales have struggled.

But multi-channel retailers with internet sales and stores are good. And a good example can be found in Next and Dunelm. However, Marks and Spencer is also a retailer that sells from stores and the internet. And that bodes well for an active turnaround.

Additionally, it appears that cost-of-living pressures may begin to weigh on consumers this year.

Investors are getting excited about the prospect of better times for business in 2021. The share price ended the year near 250p before falling in 2022.

However, 250p is a good interim target for further potential upside that could take the stock back to its glory days. And the company was riding a 20-year chart high back in 2007 when shares changed hands near 700p.

But the further progress of the stock depends on the further progress of the business. And Marks and Spencer has chalked up quite a reputation for underperformance in recent years.

Target growth

However, in January, the company published strong third-quarter trading figures for the 13 weeks to 31 December 2022. Overall sales were up 9.7% compared to the same figure a year earlier. And like-for-like sales were up 7.2%.

Food sales accounted for just over 64% of the total in the period, showing the category’s importance to the business. But to drive the stock price back to previous levels, it will likely take strong forward progress from all categories. And that means Food as well as Clothing & Home.

Chief executive Stuart Machin said in January the company was taking action to cut costs and strengthen its customer proposition. And the director focused on delivering “The M&S Reshaped Program” to drive growth and create value.

However, City analysts predict that earnings will fall by almost 10% in the current trading year to April 2024. Although shareholder dividends look set to rise by around 34%.

Marks and Spencer’s business may face more challenges ahead. And there is a risk here for investors. But if the company can maintain profitable sales, the stock could do well in the coming years.

We will find out more about the full year results report on 24 May. But in the meantime, I think the company is worth more research with a view to holding the stock for the long term.