Did NEXT's (LON:NXT) Share Price Deserve to Gain 51%?

One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, NEXT plc (LON:NXT) shareholders have seen the share price rise 51% over three years, well in excess of the market decline (9.8%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 3.1%.

Check out our latest analysis for NEXT

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over the last three years, NEXT failed to grow earnings per share, which fell 16% (annualized).

Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The revenue drop of 1.5% is as underwhelming as some politicians. The only thing that's clear is there is low correlation between NEXT's share price and its historic fundamental data. Further research may be required!

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So it makes a lot of sense to check out what analysts think NEXT will earn in the future (free profit forecasts).

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between NEXT's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Dividends have been really beneficial for NEXT shareholders, and that cash payout contributed to why its TSR of 61%, over the last 3 years, is better than the share price return.

A Different Perspective

We're pleased to report that NEXT shareholders have received a total shareholder return of 3.1% over one year. However, the TSR over five years, coming in at 5% per year, is even more impressive. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. It's always interesting to track share price performance over the longer term. But to understand NEXT better, we need to consider many other factors. Even so, be aware that NEXT is showing 3 warning signs in our investment analysis , you should know about...

NEXT is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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