Picture supply: Getty Photos
Subsequent’s (LSE: NXT) share worth is buying and selling round a 12-month excessive. This follows a acquire of 30% from its 25 July 12-month traded low of £86.03.
That stated, it’s largely irrelevant to my funding selections how a lot a share worth has gone up or down. The important thing issue I would like in shares I’m shopping for for worth positive aspects is whether or not they have worth in them.
To see if that is true for Subsequent shares, I seemed fastidiously at its enterprise and ran some key numbers.
How does the enterprise look in the meanwhile?
The agency’s full-year 2024/25 outcomes launched on 27 March noticed revenue earlier than tax break the £1bn barrier for the primary time. Extra particularly, it rose 10.1% yr on yr to £1.011bn. This drove up pre-tax earnings per share by 11.6%, to 845.2p.
All of this got here after an 8.2% improve in gross sales over the monetary yr, to £6.321bn. A lot of this resulted from the agency’s use of abroad third-party distribution networks. This has seen a 350% improve in gross sales of Subsequent branded merchandise by way of worldwide web sites during the last 10 years.
Additionally important right here has been that its on-line platform sells merchandise that aren’t completely Subsequent’s. The truth is, 42% of the agency’s on-line gross sales within the UK will not be Subsequent branded merchandise. This has allowed it to construct a now very worthwhile style and homewares aggregation platform.
Consequently, Subsequent upgraded its gross sales steering for 2025/26 to five% from 3.5%. It did the identical for its pre-tax revenue – by 5.4% to £1.066bn.
A danger here’s a surge in the price of residing within the UK, which can deter buyer spending. One other is the excessive diploma of competitors in its sector which will squeeze its margins going ahead.
Certainly, analysts forecast annual common earnings progress of a comparatively modest 4.5% to the top of 2027/28.
So is there worth remaining within the share worth?
I believe price-to-earnings is an effective place to begin to work out whether or not a inventory has any worth left in it. On this Subsequent trades at 17.4 in opposition to a peer common of 12.3. There are very many friends however I chosen Abercrombie & Fitch at 6.8, Frasers Group at 8.9, Marks and Spencer at 14.2, and H&M Group at 19.4.
So, Subsequent appears very overvalued on this comparative measure.
It appears the identical on its 8.3 price-to-book ratio too in comparison with its competitor group common of simply 2.8.
And it additionally appears very overvalued on its price-to-sales ratio of two.2 in opposition to a 0.7 common for its friends.
A clear sweep of comparative overvaluations like this isn’t a superb check in a inventory for me.
I ran a reduced money move evaluation to establish what this implies in share worth phrases. This reveals Subsequent shares are already at truthful worth degree – implying no additional worth stays in them.
My determination
If Subsequent was a inventory with a dividend yield of seven%+ I’d contemplate shopping for it. This alone might present a superb return for me on my funding. However its present yield is simply 2.1% — nowhere close to my minimal requirement.
And shopping for a inventory with no worth remaining — and low earnings progress potential — for a possible worth acquire is pure playing for my part. So, Subsequent is just not value my whereas shopping for now.
