Stock Analysis

What Is NEXT plc's (LON:NXT) Share Price Doing?

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LSE:NXT
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NEXT plc (LON:NXT), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to UK£66.14 at one point, and dropping to the lows of UK£57.70. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether NEXT's current trading price of UK£60.86 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at NEXT’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

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Is NEXT still cheap?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that NEXT’s ratio of 11.21x is trading slightly above its industry peers’ ratio of 10.4x, which means if you buy NEXT today, you’d be paying a relatively sensible price for it. And if you believe that NEXT should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since NEXT’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from NEXT?

earnings-and-revenue-growth
LSE:NXT Earnings and Revenue Growth June 14th 2022

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 relatively unexciting earnings growth of 2.2%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.

What this means for you:

Are you a shareholder? It seems like the market has already priced in NXT’s growth outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at NXT? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on NXT, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. In terms of investment risks, we've identified 2 warning signs with NEXT, and understanding them should be part of your investment process.

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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