The FTSE 100‘s Next (LSE: NXT) has delivered excellent growth for the past 20 years and at 10,210p, the share price is up by almost 600%.
But the business is still succeeding and there may be more for shareholders in the years ahead.
The UK-based retailer of clothing, homewares and beauty products has done a good job of adapting to changing market conditions over the years. Now it’s thriving as a hybrid retail organisation with both physical stores on the ground and a strong internet presence.
Accumulating brands
Meanwhile, the one-time market darlings ASOS and boohoo have crashed and burned. They focused mainly on internet sales alone.
But rather than pin my hopes on them magicking up a turnaround, I’d prefer to focus on Next, which is still grinding higher and commanding its markets.
The company has been quietly accumulating its holdings in well-known brands, and the strategy looks like a new way forward to build growth over the coming years.
For example, in today’s (30 October) trading statement the firm reminded us that it owns 74% of Joules, 97% of FatFace and 74% of Reiss.
Meanwhile, Next has done it again and trading is going well. For the three-quarter point of the year, the firm just posted robust mid-single-digit increases for full-price sales. But on top of that, the directors increased their guidance a bit for full-year revenue and earnings.
That’s the kind of steady but relentless progress we’ve been seeing for a while from the business. However, Next operates in the cyclical sector of retailing and is vulnerable to the ups and downs of the general economy.
So there are still risks for investors to consider when appraising the stock for a possible long-term hold. The regular share price dips over the years tell the story. Mistiming an entry may put an investor under water for some considerable time.
A fair valuation?
Nevertheless, I’m encouraged by the strong flow of positive news that’s been coming from the business for a while now. Meanwhile, there’s no denying the long-term trend for the stock has been up.
Perhaps another risk is that investors are well aware of the firm’s success and the valuation looks up with events.
For example, the forward-looking price-to-earnings (P/E) multiple for next year is running at about 15 and the anticipated dividend yield is around 2.4%. That compares to the average of all companies in the FTSE 100 at around 13.5 and 3.4%.
Next isn’t a bargain-bin proposition, but I believe it to be a quality business and capable of ongoing steady growth over the coming years. So I’d be inclined to run the calculator over the business on dips and market down-days with a view to considering a few shares to hold long term.
We’ll find out more from the company with the important Christmas trading statement due on 7 January 2025. I’m keeping my eyes peeled for that.
