The Marks & Spencer (LSE: MKS) share price sits today at 240p. A far cry from its 2007 peak of 707p. But the latter half of 2021 saw some astonishing growth in the share price, leaving it 52% higher over the last six months and 82% over a year. It has made me wonder whether the retailer could do it again in 2022.

Business fundamentals and share price

I’ll ignore the immediate headlines about share prices and focus on the underlying business. What does the company earn and where does its revenue come from?

According to its annual report from September 2020 to October 2021, M&S brought in £9.2bn in revenue from its food and clothing & home operations, and £41.6m in profit before tax. This was down from £10.1bn in revenue last year and down further still from £10.3bn the year before that. Unfortunately, when I look at M&S’s own financial reports going back to 2014, it has been in a steady decline for the past six years. This downtrend can also be seen in the share price, which fell from 568p in 2015 to today’s much lower figure.

But all companies have good times and bad times. In fact, these years of decline can offer a great entry point to investors if the company is making changes to its model that bode well for the future.

Move online

And it certainly is making changes. The M&S investors page states the percentage of clothing sales made online. In 2021 that was 50.5%. I haven’t been able to find data on how much revenue clothing brings in alone, but lumped together with home products the two contributed £3.2bn in 2021. And 30% of sales for both were made online. That’s a company that was lagging behind its peers in its online sales just a few years ago.

M&S has been undergoing a multi-year effort to move more of its business into the online space, a move that comes with some benefits but a few potential downsides too. Online sales often have smaller profit margins than their in-store counterparts. This might seem counter intuitive, but I have to remember that online is the future of retail. The past 10 years have seen a gradual decline in retail profit margins as online shopping has taken over more of the market. But if Marks & Spencer can make up the difference in sales volume, this online pivot could really pay off. It certainly is large enough to do.

Moving online also allows M&S to reach new markets with lower initial costs. At the start of 2021 it announced the launch of 46 new websites around the world, including Argentina and Uzbekistan. Some of these ventures might fail, but a lot won’t, becoming new sources of revenue for years to come.

M&S branding and recognition 

The company has seen some tough years recently, but we are already starting to see some of these changes come into effect. In early November, Marks & Spencer’s share price jumped 20% in a single day after it announced a boom in clothing sales had pushed pre-tax profits to nearly £187m.

This amazing turn of events offset losses made over the rest of the year. If it can maintain even a fraction of that momentum, I think the share price could remain on the upswing through 2022.

That’s why I’ll be adding it to my portfolio.

The post The Marks & Spencer share price rose 52% in six months. Can it soar again in 2022? appeared first on The Motley Fool UK.

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• Here’s what I think will happen to the Marks and Spencer share price in 2022
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James Reynolds 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.