Should I buy this falling FTSE 100 stock for growth and returns?

This Fool takes a closer look at a prominent FTSE 100 stock that has seen its shares come under pressure. Is it an opportunity or one to avoid?

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Many FTSE 100 stocks continue to fall or are struggling to bounce back due to current headwinds and geopolitical issues. This has resulted in some potential bargains for me to consider for my holdings. One stock I’m currently considering is Next (LSE:NXT). Let’s take a closer look to see if I should buy or avoid the shares.

Retail business

As a quick reminder, Next is best known as a fashion retailer selling clothing and accessories for all, as well as homewares and beauty. It’s a high street staple in the UK with over 500 stores here and 200 overseas. It also has a successful online store that accounts for more than half of its sales.

So what’s happening with Next shares currently? Well, as I write, they’re trading for 5,838p. At this time last year, the stock was 7,670p, so that’s a 23% drop over a 12-month period.

The investment case

Let’s start by looking at the bear aspects of Next shares. Firstly, current macroeconomic headwinds could play a big part in its performance and levels of return. Soaring inflation, rising costs, as well as supply chain issues will affect it. Rising costs will put pressure on profit margins. Supply chain issues could negatively impact operations and product availability.

Finally, a cost-of-living crisis has emerged in the UK. The crisis could see demand for its fashion and home products fall as consumers consider cheaper goods or simply decide not to buy new fashion and interiors pieces.

So to the bull case. I think Next shares look good value for money on a price-to-earnings ratio of just 10. In addition to this, they would also boost my passive income stream through dividends. The current dividend yield stands at 6.9%. This is higher than the FTSE 100 average of 3%-4%. I’m aware the dividends can be cancelled, however.

I’m buoyed by Next’s growth story to date, and position in the market. It has strategically moved with the times such as scrapping its catalogue model and moving online very early on, later moving into selling third-party brands, and offering full e-commerce services to other labels. I like this because it tells me not only does it know how to grow, it also has experience of navigating stormy waters and evolving.

A FTSE 100 stock I’d buy

A final noteworthy point is that Simon Wolfson, Next’s CEO, is connected to a charitable trust that purchased £10m worth of shares in July. I like it when insiders are purchasing shares. This is because they should know best whether it’s heading in the right direction. If insiders are willing to buy the shares, maybe I should too?

In conclusion, I believe Next is a well-run business with great growth prospects too. It has a powerful profile and presence, as well as a strong historic track record, and an enticing passive income opportunity currently. I plan on buying the shares for my portfolio. However, I do expect some further headwinds in the short to medium term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jabran Khan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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