LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.
So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.
Today I am looking at Marks & Spencer (LSE:MKS) to determine whether you should consider buying the shares at 384 pence.
I am assessing each company on several ratios:
Price/Earnings (P/E): Does the share look good value when compared against its competitors?
Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?
Yield: Does the share provide a solid income for investors?
Dividend Cover: Is the dividend sustainable?
So let's look at the numbers:
|Stock||Price||3-Yr. EPS Growth||Projected P/E||PEG||Yield||3-Yr. Dividend Growth||Dividend Cover|
|Marks & Spencer||384p||6%||11.8||N/A||4.4%||13%||2|
The consensus analyst estimate for next year's earnings per share is 32.5 pence (down 6%) and dividend per share is 17 pence (no growth).
Trading on a projected P/E of 11.8, M&S appears cheaper than its peers in the general retailers sector, which are currently trading on an average P/E of around 13.5.
M&S offers a 4.4% yield, which is above the general retailer's sector average of 3%. M&S has a three-year compounded dividend growth rate of 13%, implying the yield will continue to stay above that of its peers.
However, the consensus analyst estimate for next year currently predicts no dividend growth, which leads me to believe that M&S's dividend yield could in time begin to fall behind the rest of the sector.
That said, the dividend is covered twice by earnings, giving M&S room for some payout growth.
Earnings are falling, so should you buy Marks & Spencer for its yield?
As I say, M&S's earnings are falling and I believe this is set to continue as M&S struggles in the tough U.K. retail climate. Indeed, within January's interim management statement, M&S reported that overall group sales grew by only 0.6% during the six-month reporting period.
In addition, the majority of this minuscule growth was online, where sales expanded by 11%. Unfortunately, store sales in the U.K. actually declined by 1.8%.
Nonetheless, the food side of the business continued to perform well and food sales over the past two years have grown by more than 7%. In addition, during last year's two key Christmas trading weeks, M&S food sales grew to a record of 330 million pounds.
Furthermore, M&S continues to invest for growth. In particular, the company is improving its online presence and expanding its food division, which during the last quarter of 2012 launched 700 new products.
Overall, M&S's earnings are falling but the company is still growing in some areas, which should support the dividend. So, all in all, I believe now looks to be a good time to buy Marks & Spencer at 384p for the income the share offers.
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In the meantime, please stay tuned for my next verdict on a FTSE 100 share.
Rupert does not own any share mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.