Update: Marks & Spencer

The cost of living crisis has weighed on a third earlier tip, Marks & Spencer. Its shares have fallen by a third since the start of the year and now trade on a forecast price-to-earnings ratio of just seven. In Questor’s view, this adequately factors in the potential for a squeeze in discretionary incomes that could depress sales across the retail sector.

The company’s third quarter trading update showed an improving performance across its food, clothing and home segments. Combined, they generated an 18.5pc rise in sales relative to the same period of the previous year.

M&S is benefiting from offering fewer product promotions and its investment in digital sales. And its joint venture with Ocado provides exposure to a rapidly growing online grocery market that is expected to account for 18pc of all grocery sales by 2025. This compares with just 12pc in 2021.

This week’s news regarding senior management changes could create additional uncertainty for the firm in the short run. However, the swift appointment of internal candidates means a major strategy overhaul is unlikely. The road to a share price recovery may not be a smooth one, but a low valuation and sound strategy mean it offers a favourable risk/reward opportunity. Buy.

Questor says: buy

Ticker: MKS

Share price at close: 158.45p

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