Is It Time To Consider Buying NEXT plc (LON:NXT)?

Today we're going to take a look at the well-established NEXT plc (LON:NXT). The company's stock received a lot of attention from a substantial price increase on the LSE over the last few months. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s take a look at NEXT’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for NEXT

Is NEXT Still Cheap?

NEXT appears to be overvalued by 27% at the moment, based on my discounted cash flow valuation. The stock is currently priced at UK£66.94 on the market compared to my intrinsic value of £52.87. Not the best news for investors looking to buy! If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that NEXT’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from NEXT?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of NEXT, it is expected to deliver a negative earnings growth of -11%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What This Means For You

Are you a shareholder? If you believe NXT should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the uncertainty from negative growth in the future, this could be the right time to de-risk your portfolio. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on NXT for a while, now may not be the best time to enter into the stock. Price climbed passed its true value, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the track record of its management. Should the price fall in the future, will you be well-informed enough to buy?

So while earnings quality is important, it's equally important to consider the risks facing NEXT at this point in time. When we did our research, we found 2 warning signs for NEXT (1 makes us a bit uncomfortable!) that we believe deserve your full attention.

If you are no longer interested in NEXT, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.