Stock Analysis

Is NEXT plc (LON:NXT) Potentially Undervalued?

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LSE:NXT
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Let's talk about the popular NEXT plc (LON:NXT). The company's shares saw a significant share price rise of over 20% in the past couple of months on the LSE. 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. But what if there is still an opportunity to buy? 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.

See our latest analysis for NEXT

Is NEXT still cheap?

Great news for investors – NEXT is still trading at a fairly cheap price. My valuation model shows that the intrinsic value for the stock is £113.50, but it is currently trading at UK£78.80 on the share market, meaning that there is still an opportunity to buy now. However, 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.

What kind of growth will NEXT generate?

earnings-and-revenue-growth
LSE:NXT Earnings and Revenue Growth January 14th 2021

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. With profit expected to grow by 90% over the next couple of years, the future seems bright for NEXT. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? Since NXT is currently undervalued, it may be a great time to accumulate more of your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as financial health to consider, which could explain the current undervaluation.

Are you a potential investor? If you’ve been keeping an eye on NXT for a while, now might be the time to enter the stock. Its prosperous future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy NXT. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed investment decision.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - NEXT has 4 warning signs we think you should be aware of.

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