Suddenly, out of nowhere, Black Friday descended on the UK in 2014. Prior to last year it had mostly been an American phenomenon, however UK shoppers queued, pushed and even fought over heavily discounted items as the UK retail scene embraced the idea.
Of course, UK retailers have had it tough for a number of years, with their profitability and share prices generally coming under severe pressure as consumers have limited their spending. One company which has bucked the trend, though, is Next (LSE: NXT). It has posted five consecutive years of double-digit profit growth and a key reason for this is strong customer loyalty as well as a sound strategy. This has seen Next diversify its offering and fail to over-discount in search of sales at the expense of margins.
Looking ahead, Next is expected to increase its bottom line by 8% in the current financial year and by a further 6% next year. However, after its share price has soared by 280% in the last five years it now trades on a price to earnings growth (PEG) ratio of 2.6 and this indicates that there may be more appealing options available elsewhere.
For example, Boohoo.Com (LSE: BOO) is due to increase its earnings at a rapid rate thanks in part to a refreshed marketing campaign. Its bottom line is forecast to rise by 43% in the current year and by a further 27% next year and, despite such a strong rate of growth, Boohoo.Com trades on a PEG ratio of just 0.9. Certainly, investor sentiment in the company has been weak since its IPO in March 2014 and, while its shares could remain volatile, it seems likely that in the long run it will become a strong performer.
Similarly, owner of Argos and Homebase, Home Retail (LSE: HOME), has endured a challenging 2015, with disappointing sales performance being the catalyst behind a fall of 50% in its share price since the turn of the year. In fact, Home Retail’s earnings are due to fall by 23% this year and, while earnings growth of 6% is forecast for next year, this would still only be in-line with the wider market growth rate. Where there is opportunity, though, is with regard to an upward rerating since Home Retail trades on a price to earnings (P/E) ratio of just 10.3.
Meanwhile, Moss Bros (LSE: MOSB) is set to post strong growth next year, with the company’s bottom line forecast to rise by 17%. And, following an expected increase in earnings of 7% this year, this would be five consecutive years of growth, which indicates that the clothing rental business is relatively well insulated from the challenges which the wider retail sector has faced. Despite its share price rise of 19% since the turn of the year Moss Bros trades on a PEG ratio of just 1.2, which indicates that it offers capital gain potential.
Also offering upbeat long term prospects is M&S (LSE: MKS), with the company expected to grow its net profit by 8% this year and by a further 7% next year. This could stimulate investor sentiment after a disappointing number of years and, with the company having a relatively high degree of customer loyalty, it appears to be a relatively low risk option within the retail space. This, plus the changes being made by the management team which are gradually starting to come through, means that M&S appears to be a sound long term buy, while a yield of 3.8% indicates that it remains a strong income play, too.
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Peter Stephens owns shares of Marks & Spencer Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.