Here at the Fool UK, we think stocks should be bought and held for the long term. While long term is open to interpretation, were thinking at least five years. This sort of timeframe allows a company to exercise its growth strategy or recover from a sticky patch in trading. For holders of clothing and food stalwart Marks and Spencer (LSE: MKS), however, the latter is still awaited.
Its no secret that the now-FTSE 250 business, like many high street retailers, has struggled in recent times. But just how bad has it been as an investment?
Long term loser
If youd put 1,000 in Marks on Monday, 22 December 2014, youd have got 221 shares for your money. For simplicitys sake, Im using the price at the end of the day and ignoring the costs of trading here.
Over the last five years, Marks and Spencers share price has more than halved in value. So, if youd done nothing, your stake would now be worth a measly 480.
Admittedly, this shabby state of affairs is improved once dividends are considered. Based on my research, those buying the stock five years ago would have received a total of 90.1p per share to date. A holding of 221 shares would, therefore, have generated a total payout of just over 199. Adding this to the value of the shares now gives a final total of 679, if we assume dividends werent re-invested.
A 32% loss over five years? What a shambles!
If only Id bought
Marks and Spencers woes are all the more ironic when its considered that the performance of online grocery specialist Ocado (LSE: OCDO) a company that the battered retailer purchased a 750m stake in earlier this year has been so good.
Had you put your 1,000 to work with Ocado rather than Marks five years ago, youd have a little over 3,000 now. What makes this result even more remarkable is the fact that all this has come purely from share price growth. Ocado doesnt pay out dividends to its owners.
So, its safer to back Ocado?
Not necessarily. Given that its still to generate consistent profits, the 9bn cap is clearly one of the more speculative plays in the FTSE 100 right now. The longer this situation persists, the more likely investors are to bank their gains and move on. Such is the issue with momentum stocks: theyre a great source of profits right up until the point theyre not.
In sharp contrast, expectations around Marks and Spencer have rarely been this low, particularly when it comes to its clothing range. Accordingly, the shares change hands for just 12 times earnings.
Whether this valuation turns out to be a bargain will depend greatly on what happens next September when the deal kicks in. Given what its paid to use Ocados software, it goes without saying that everything must work swimmingly from the outset.
I see no particular reason why this wont happen. However, one persistent concern I do have is whether it will be able to attract a sufficient number of new customers. Getting those who buy products from Waitrose through Ocado to swap to M&S is one thing, but asking those not already on board to pay more for their food is another.
Marks next updates the market on 9 January. For the sake of those holding since 2014, I hope its good news.
