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Why the Marks and Spencer share price soared 23% last week

When looking at the best performing stocks last week, one company stands out. The Marks and Spencer (LSE:MKS) share price jumped 23%, to close on Friday at 237p. Considering the struggles that the business has endured in recent years, this jump was certainly good news. It also means that over a one-year period, the share price has almost doubled, rising 95%. Here’s what has been happening.

Good results push the shares higher

The main event that pushed the Marks and Spencer share price higher was the release of its half-year results through to the beginning of October. The company used 2019 figures as a comparison instead of the pandemic hit 2020 period. Obviously, this makes more sense. So with reference to 2019, revenue was up 5%. And profit before tax was up 17.9% at £187.3m.

Good progress was also seen in other parts of the financial statement. For example, net debt was reduced from £4.07bn in 2019 to £3.15bn now. It actually coped well during 2020 in this regard, lowering net debt to £3.82bn.

Free cash flow (an important metric for retailers) improved to £287.6m, having actually been below zero in 2019. This should really help the company going forward.

Marks and Spencer isn’t getting too excited by the results though. CEO Steve Rowe said: “Unpacking the numbers isn’t a linear exercise and we’ve called out the Covid bounce-back tailwinds, as well as the headwinds from the pandemic, supply chain and Brexit, some of which will continue into next year”.

Can the Marks and Spencer share price keep going?

The release of the results on Wednesday morning saw the share price jump to 229p. It closed the week at 237p. So even after the results, the following couple of days saw further gains for the shares. 

This bodes well for investors, showing that even after people had time to fully digest the report, the bias was still towards buying shares. Part of this rise was also linked to the positive outlook from the business.

It raised the full-year profit before tax and adjusting items guidance to around £500m. Back in August this estimate stood at £350m. So it’s clear that even with the risks associated with a temporary Covid comeback, the outlook does seem good.

The rally in the Marks and Spencer share price could continue in coming months too, in my opinion. The business is entering the key festive season trading period. After many tightened their belts last Christmas, I’d expect consumer spending to be much higher this year. Supply chain issues are a definite risk though.

The business still has a long way to go before it gets back to the glory days. In fact, it might never get back there. But the results last week were definitely a catalyst to push it in the right direction. Personally, I’m going to see how the share trades in the next couple of weeks before committing, but it’s definitely on my watchlist as a stock worth buying.

The post Why the Marks and Spencer share price soared 23% last week appeared first on The Motley Fool UK.

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jonathansmith1 and The Motley Fool UK have 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.

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