Here at the Fool UK, we think stocks should be bought and held for the long term. While ‘long term’ is open to interpretation, we’re thinking at least five years. This sort of timeframe allows a company to exercise its growth strategy or recover from a sticky patch in trading. For holders of clothing and food stalwart Marks and Spencer (LSE: MKS), however, the latter is still awaited.
It’s no secret that the now-FTSE 250 business, like many high street retailers, has struggled in recent times. But just how bad has it been as an investment?
Long term loser
If you’d put £1,000 in Marks on Monday, 22 December 2014, you’d have got 221 shares for your money. For simplicity’s sake, I’m using the price at the end of the day and ignoring the costs of trading here.
Over the last five years, Marks and Spencer’s share price has more than halved in value. So, if you’d done nothing, your stake would now be worth a measly £480.
Admittedly, this shabby state of affairs is improved once dividends are considered. Based on my research, those buying the stock five years ago would have received a total of 90.1p per share to date. A holding of 221 shares would, therefore, have generated a total payout of just over £199. Adding this to the value of the shares now gives a final total of £679, if we assume dividends weren’t re-invested.
A 32% loss over five years? What a shambles!
If only I’d bought…
Marks and Spencer’s woes are all the more ironic when it’s considered that the performance of online grocery specialist Ocado (LSE: OCDO) — a company that the battered retailer purchased a £750m stake in earlier this year — has been so good.
Had you put your £1,000 to work with Ocado rather than Marks five years ago, you’d have a little over £3,000 now. What makes this result even more remarkable is the fact that all this has come purely from share price growth. Ocado doesn’t pay out dividends to its owners.
So, it’s safer to back Ocado?
Not necessarily. Given that it’s still to generate consistent profits, the £9bn cap is clearly one of the more speculative plays in the FTSE 100 right now. The longer this situation persists, the more likely investors are to bank their gains and move on. Such is the issue with momentum stocks: they’re a great source of profits right up until the point they’re not.
In sharp contrast, expectations around Marks and Spencer have rarely been this low, particularly when it comes to its clothing range. Accordingly, the shares change hands for ‘just’ 12 times earnings.
Whether this valuation turns out to be a bargain will depend greatly on what happens next September when the deal kicks in. Given what it’s paid to use Ocado’s software, it goes without saying that everything must work swimmingly from the outset.
I see no particular reason why this won’t happen. However, one persistent concern I do have is whether it will be able to attract a sufficient number of new customers. Getting those who buy products from Waitrose through Ocado to swap to M&S is one thing, but asking those not already on board to pay more for their food is another.
Marks next updates the market on 9 January. For the sake of those holding since 2014, I hope it’s good news.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019