Is Marks & Spencer the FTSE 100’s most overvalued stock?
Identifying potentially undervalued stocks is the secret to profitable investing. Indeed, this has been the approach of many of the worldâs most successful investors. And by focusing on a companyâs fundamentals like its competitive position and balance sheet strength, itâs possible to identify opportunities that others might overlook.
However, based on Marks & Spencerâs (LSE:MKS) earnings over the past year, the retailer is the most expensive stock on the FTSE 100. Surely not? Letâs take a closer look.
Crunching the numbers
During the 52 weeks to 27 September 2025, the British icon reported basic earnings per share (EPS) of 0.9p. With a share price of just under 382p as I write on 11 February, it means the stockâs trading on an eye-watering 424 times earnings. This puts it comfortably at the top of the league table of the FTSE 100’s price-to-earnings (P/E) ratios. By anyoneâs standards, this is incredibly expensive.
However, over this period, M&S suffered a devastating cyberattack, from which it still hasnât fully recovered. This resulted in exceptional charges — estimated to be in the region of £140m â being incurred. On top of this, there was a loss of revenue (and profit) as its website was unavailable for weeks.
Also, from 29 March 2025 to 27 September 2025, net debt increased from £1.79bn to £2.53bn. Having said that, the group remained in a net cash position at the end of this period when lease liabilities are removed.
For obvious reasons, companies prefer to report adjusted earnings that remove the impact of these (hopefully) one-off events. Doing this gives a revised EPS of 23.8p and P/E ratio of 16. Suddenly, the British retailer looks to be a much more attractive prospect.
Thatâs probably why analysts have a 12-month share price target thatâs 15% higher than todayâs value. Berenberg says the stock trades on just 10 times its March 2027 forecast earnings. And due to its cash flow potential, the bank’s anticipating that M&S will be in a position to improve its dividend yield to 3%-4%. However, this seems ambitious to me given that the historic (trailing 12 months) return is 0.9%.
Patience is key
But I suspect it will be a while before investor confidence is fully restored, even though Iâm certain that the groupâs now in a better position to withstand another cyber attack. M&S’s status as a much-loved British institution — and its successful efforts to shed its image as a seller of frumpy clothing — has seen shoppers return.
The group reported a record number of customers over the Christmas season. Its boss said: “Food sales were strong, and the business continues to outperform, hitting a new market share milestone in the period.â Encouragingly, he added: âFashion, home and beauty is getting back on track as we work through the tail end of recovery.”
The food side of the business continues to be the star performer. And to take advantage of weight-loss drugs leading to smaller appetites, itâs launched a ‘Nutrient Dense’ range. Also, its 50:50 joint venture with Ocado, is doing very well. It’s currently the fastest-growing grocer in the UK.
On reflection, I donât think Marks & Spencer is the most overvalued FTSE 100 stock. By contrast, I reckon it could be one of its best bargains. For this reason, I think itâs a recovery stock for long-term investors to consider.
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James Beard 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.
