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Can this brilliant FTSE 100 stock performance continue into 2020?

The retail business is suffering, and fashion can be fickle, but I’ve always liked Next (LSE: NXT) as an investment.

Near me, there’s a branch of Next opposite a Marks & Spencer store, and the contrast can hardly be greater. M&S keeps failing to attract customers for its clothing, while Next doesn’t seem able to do anything wrong. 

That’s borne out by the company’s Christmas trading figures, released Friday, which came in ahead of expectations. In the quarter to 28 December, full-price sales were up 5.2% (and up 3.9% for the full year).

Next has now upped its full-year profit guidance a little, by £2m to £727m, with an EPS boost of 5.4% predicted. Looking forward to the year ending January 2021, initial guidance suggests a further 3% gain for full-price sales, with EPS up another 5.4% (which is slightly ahead of brokers’ forecasts).

Online

I find the split between traditional store sales and online sales interesting, with the former declining by 4.6% over the year and web sales up 12.1%. And I think that’s where Next has a strong competitive advantage. While some competitors are struggling to make a name for themselves as online destinations of choice, Next was ahead of the pack and has had its web offering running for years with growing success.

The only slight disappointment is that end-of-season clearance rates to date have been slightly lower than its expectations, but I suspect that’s still a good bit better than many struggling retailers are likely to have achieved.

The share price had a great 2019, having put on 60% over 12 months (while M&S, sadly, saw its shares fall by 15% to add to that company’s woes). But surely that must have led to some sort of premium valuation?

Well, only a little. Sure, we’re looking at shares on a forward P/E multiple of 16, but I see that as merely a deserved valuation rather than anything to be troubled over. Popular growth shares typically command valuations well above that, often double and more, so I think the number of momentum investors is probably relatively small.

Dividend

Dividends are important to me, and Next’s are nowhere near the biggest on the market at around 2.5%. But they should be covered more than 2.5 times by earnings, which is very healthy. I’m always quite scathing towards companies that put paying dividends ahead of their balance sheet health, and keep handing over large amounts of cash while, for example, shouldering huge debts. Next’s approach, by contrast, gives me more confidence in its dividends in the years to come rather than just this year’s, and that’s a good thing.

Oh, and the dividend is generally progressive too, though it was kept flat in the two no-growth years of 2017 and 2018. But if forecasts come good, it will have been lifted by 15% over the past five years, and even managing to match inflation through the last few years of retail turmoil is a pretty good achievement in my book.

Now, after all that positive thought, it’s only fair to point out that my Fool colleague Royston Wild paints a more bearish picture of Next shares, and it’s important to look at all sides of an investment decision.

Will the shares keep climbing in 2020? I think they’re on a fair valuation now and more likely to tread water, and I think there’ll be better buying opportunities in the future.

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Alan Oscroft 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.