Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Is It Still Safe to Buy Marks and Spencer Group Plc (MKS)?

Marks & SpencerLONDON — I’m always searching for shares that can help ordinary investors like you make money from the stock market. However, many people are currently worried the market could be overheating.

So right now I’m analyzing some of the most popular companies in the FTSE 100, hoping to establish if they can continue to outperform in today’s uncertain economy.

Today, I’m looking at retail giant Marks and Spencer Group Plc (LON:MKS) to determine whether the shares are still safe to buy at 469 pence.

So, how’s business going?
Marks and Spencer Group Plc (LON:MKS) has outperformed the market recently as investors continue to weigh up the possibility that the company could become a takeover target.

However, while the company’s shares have been outperforming, on the ground the 129-year old firm has been struggling to compete in the U.K.’s ferocious retail market.

In particular, Marks and Spencer Group Plc (LON:MKS) reported last week that its profits for 2012 had fallen back to a level not seen since 2009. In addition, it is struggling to reverse seven straight quarters of declining clothing sales within its home market.

Furthermore, these poor sales figures come two years into a three-year, 2.4 billion-pound turnaround plan aimed at revamping the retailer’s stores and expanding overseas.

That said, the company’s management remains upbeat and forecasts an “underlying profit improvement” for the 2013-2014 year. However, some analysts remain doubtful and believe that the retailer has lost support from its key clothing customers.

Expected growth
Unfortunately, while the company’s management remains upbeat about the future, many City analysts expect Marks and Spencer Group Plc (LON:MKS)’s earnings growth to remain sluggish for the next two years. City forecasts currently predict earnings of 33.5 pence per share for 2013/2014 (3% growth) and 36.8 pence per share for the year after.

Shareholder returns
Marks & Spencer has a checkered dividend history as the firm has slashed its payout twice since 2000. That said, it currently offers a dividend yield of 3.5%, larger than that of its peers in the general retailers sector.

In addition, after keeping its dividend steady at 17 pence per share for the last three years, many City analysts expect the company to begin increasing its payout again next year. City forecasts expect a dividend of 17.9 pence a share for 2013/2014 (5% rise) and 19 pence a share for the year after.

Surprisingly, despite Marks and Spencer Group Plc (LON:MKS)’s falling profits and struggling sales, it trades at a premium to its peers. It is currently valued at a historic P/E of 16.6, while its peers trade on an average historic P/E of around 15.8.

Foolish summary
While the general market remains positive about Marks and Spencer Group Plc (LON:MKS), I do not share the same optimism. So, based on the company’s struggling sales and high valuation in relation to its peers, overall, I feel that Marks & Spencer does not look safe to buy at 469 pence.

The article Is It Still Safe to Buy Marks and Spencer? originally appeared on and is written by Rupert Hargreaves.

Rupert Hargreaves does not own any share mentioned in this article, and neither does The Motley Fool.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.