If I'd put £10k into Marks & Spencer shares in October 2022, here's what I'd have now

For years, I’ve watched Marks & Spencer (LSE: MKS) shares slide. The company just kept struggling to keep up with its fashion competitors, and missed the boat year after year.

It was doing fine with food. And these days it’s part of Ocado Retail, a joint venture with Ocado. So it gets its desirable comestibles out via online delivery now too.

I always hoped M&S would turn it round eventually, though I never came close to buying the shares.

It’s taken more than 20 years since the rot started to set in, but it really does look like the company might have finally pulled it off.

Stunning gains

From a low point in October 2022, the Marks & Spencer share price has soared by 180%. So £10k invested in the stock back then would be worth £28k now.

The question is, can it keep going? I think it can, and M&S shares still look cheap to me.

Part of the problem was that the brand name was rooted to those towering old department stores. They always looked to me like they came out of the sixties, even with whatever modern decor they could manage.

We’ve had a shift now. I’ve only seen one new store, but it has a couple of floors in a much newer shopping area in my home city. Inside, it doen’t look like the M&S of old at all.

Still, this won’t mean a lot unless the company can keep its earnings growth going.

Future growth

I don’t expect another year of huge share price growth. But the shares don’t look like they’ve been pushed too far, and the valuation still looks modest.

Forecasts put the price-to-earnings (P/E) ratio at 12 for the current year. With the FTSE 100 averaging around 14 to 15 over the long term, that seems fair to me. But not screaming cheap.

Still, if earnings keep growing as predicted, it could drop to under 10 by 2026. And if the dividend yield hits the mooted 2.9% by then, I think the stock would look cheap.

Future dividends

Speaking of dividends, Marks & Spencer hadn’t paid one for a few years. But at the halfway stage, we saw 1p per share. Not a lot, but I’d still call it a milestone.

Net debt is falling too, though there is more needed there, along with further costs savings.

CEO Stuart Machin assessed the state of the firm with: “In summary – we’re only just beginning. Lots done, lots to do, lots of opportunity.“

Uncertainty

The bit about lots to do does mean there’s risk too. The retail sector isn’t out of the woods yet, and we still don’t know what effects the inflation years will have. And what the online shopping landscape will be like in another 10 years is anyone’s guess.

But, I think we’re looking at a stock that could become one of the next generation of long-term FTSE 100 dividend stars.