One explanation is that Marks & Spencer has appeared on numerous share tip lists as an obvious recovery stock. Several newspapers included the company in its New Year share tips, though thankfully not this one, and the brokers have been unrelenting in rating the stock a buy.
But investors don't have to read the newspapers to think in the same way as them. Marks & Spencer is still a terrific brand which in the past has achieved outstanding retail success. The logic behind buying the shares, then, is the belief that they must bounce back at some stage.
This is a bad enough strategy to apply to stock market investment generally, but it is a particularly bad when applied to a specific stock. The world is a fast changing place and just because a company was once streets ahead of its peers, doesn't mean it will ever be thus. Marks & Spencer shares have repeatedly over the last year attempted to stage a recovery, supported presumably by those 50,000 newcomers, only to be clobbered equally repeatedly by yet more bad news. The correct strategy with Marks & Spencer shares would have been to sell into the rallies, not the usual one of buying on the dips.
It seems unlikely that yesterday's plater of shockers finally marks the bottom, though the 50,000 freshers must certainly hope it does. It is worth remembering that even at these depressed levels the shares command one of the best ratings in the retail sector. This seems hard to justify for a company that is losing market share and sales on the scale unveiled at yesterday. M&S continues to enjoy a premium rating - albeit not as big as the one it had - but there is no sign of the renewed sales growth needed to back it up.
It may well be that things are destined to get still worse before they get better.Reuse content